<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1998
REGISTRATION NO. 333-47495
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
NVIDIA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
DELAWARE 3674 94-3177549
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
3535 MONROE DRIVE
SANTA CLARA, CA 95051
(408) 615-2500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
JEN-HSUN HUANG
CHIEF EXECUTIVE OFFICER
NVIDIA CORPORATION
3535 MONROE DRIVE
SANTA CLARA, CA 95051
(408) 615-2500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JAMES C. GAITHER LARRY W. SONSINI
ERIC C. JENSEN JAMES N. STRAWBRIDGE
KARYN R. SMITH JON C. GONZALES
COOLEY GODWARD LLP WILSON SONSINI GOODRICH & ROSATI
ONE MARITIME PLAZA PROFESSIONAL CORPORATION
20TH FLOOR 650 PAGE MILL ROAD
SAN FRANCISCO, CA 94111 PALO ALTO, CA 94304
(415) 693-2000 (650) 493-9300
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
number for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued December 29, 1998
3,500,000 Shares
[LOGO OF NVIDIA]
COMMON STOCK
-----------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL
PUBLIC OFFERING PRICE WILL BE BETWEEN $7.00 AND $9.00 PER SHARE. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE. THE SHARES OF COMMON STOCK
OFFERED HEREBY HAVE BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL
MARKET UNDER THE SYMBOL "NVDA" SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
-----------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 6 HEREOF.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
-------- --------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total(3)................................... $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at
$1,800,000.
(3) The Company has granted the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of 525,000
additional Shares at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$ , $ and $ , respectively. See "Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters. It is expected that delivery of the Shares will be made on or
about , 1999 at the office of Morgan Stanley & Co. Incorporated,
New York, N.Y., against payment therefor in immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER
HAMBRECHT & QUIST
PRUDENTIAL SECURITIES INCORPORATED
, 1999
<PAGE>
[Description of illustration: four computer monitors depicting 3D rendering of
a building exterior, a game image, an anatomy illustration and the eye of a
frog. The caption is "Awesome 3D graphics-mainstream". The NVIDIA name and
logo also are depicted.]
Text to accompany artwork:
NVIDIA designs, develops and markets 3D graphics processors and related
software that provide high performance interactive 3D graphics to the
mainstream PC market.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
<PAGE>
MAKING FANTASY REALITY AND REALITY FANTASTIC.
ARTWORK TEXT:
FOCUS ON MAINSTREAM
PC users today can easily differentiate the quality of graphics and prefer PCs
that provide a superior visual experience. NVIDIA's strategy is to achieve
market leadership in the high volume mainstream PC market by providing
compelling 3D graphics performance at competitive prices.
AWARD-WINNING TECHNOLOGY
NVIDIA's graphics processors are highly integrated single-chip solutions that
support high performance interactive 3D graphics applications while
simultaneously optimizing 2D graphics and providing VGA compatibility and DVD
playback. The benefits and performance of the RIVA family of graphics
processors have received significant industry validation and have enabled the
Company's customers to win over 180 industry awards.
LEADING OEMS
NVIDIA's strategy is to enable leading OEM customers to differentiate their
products in a highly competitive marketplace by using NVIDIA's high
performance 3D graphics processors. The Company's products are used by six of
the top ten PC OEMs--Compaq, Dell, Gateway, IBM, Micron and Packard Bell NEC--
as well as leading motherboard manufacturers such as Intel and leading add-in
board manufacturers such as ASUSTeK, Canopus, Creative, Diamond, ELSA and
Leadtek.
[OEM LOGOs]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
THE COMPANY
NVIDIA designs, develops and markets 3D graphics processors and related
software that provide high performance interactive 3D graphics to the
mainstream PC market. The Company's graphics processors are designed to deliver
a highly immersive, interactive 3D experience with realistic imagery and
stunning effects. The RIVA family of graphics processors, including the RIVA
TNT, provides superior processing power at competitive prices and is
architected to take advantage of mainstream industry standards such as
Microsoft's Direct3D API. The highly integrated design of the Company's
graphics processors combines high performance 3D and 2D graphics on a single
chip and provides a simpler and lower cost graphics solution relative to
competing solutions, including multi-chip or multi-board 3D/2D graphics
subsystems.
NVIDIA designed the RIVA family of graphics processors to enable PC OEMs and
add-in board manufacturers to build award-winning products by delivering state-
of-the-art interactive 3D graphics capability to end users while maintaining
affordable prices. The Company believes that by developing 3D graphics
solutions that provide superior performance and address the key requirements of
the mainstream PC market, it will accelerate the adoption of 3D graphics
throughout this market. The benefits and performance of the RIVA family of
graphics processors have received significant industry validation and have
enabled the Company's customers to win over 180 industry awards. NVIDIA's
graphics processors currently are designed into products offered by six of the
top ten PC OEMs--Compaq, Dell, Gateway, IBM, Micron and Packard Bell NEC as
well as by leading motherboard manufacturers such as Intel and leading add-in
board manufacturers such as ASUSTeK, Canopus, Creative, Diamond, ELSA and
Leadtek.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered................. 3,500,000 shares
Common Stock to be outstanding after
the offering........................ 28,565,226 shares(1)
Use of proceeds...................... For general corporate purposes, including
capital expenditures and working capital.
See "Use of Proceeds."
Nasdaq National Market symbol........ NVDA
</TABLE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
(APRIL 5, 1993) ---------------------------------- -------------------------
TO DECEMBER 31, SEPTEMBER 28, OCTOBER 25,
1993 1994 1995 1996 1997 1997 1998(2)
--------------- ------- ------- ------- ------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenue........... $ -- $ -- $ 1,182 $ 3,912 $29,071 $ 5,537 $92,700
Gross profit (loss)..... -- -- (367) 874 7,827 631 25,300
Operating income
(loss)................. (506) (1,351) (6,470) (2,993) (3,459) (4,911) (3,900)
Net income (loss)....... (484) (1,361) (6,377) (3,077) (3,589) (5,013) (3,532)
Basic net income (loss)
per share(3)........... $ (.07) $ (.19) $ (.56) $ (.27) $ (.28) $ (.41) $ (.25)
Diluted net income
(loss) per share(3).... $ (.07) $ (.19) $ (.56) $ (.27) $ (.28) $ (.41) $ (.25)
Shares used in basic per
share computation(3)... 6,784 7,048 11,365 11,383 12,677 12,123 14,152
Shares used in diluted
per share
computation(3)......... 6,784 7,048 11,365 11,383 12,677 12,123 14,152
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 25, 1998
----------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $12,461 $36,701
Total assets............................................. 76,502 100,742
Capital lease obligations, less current portion.......... 2,032 2,032
Total stockholders' equity............................... 18,294 42,534
</TABLE>
- -------
(1) Based on the number of shares outstanding as of November 30, 1998. Includes
1,571,429 shares of Common Stock issuable on the mandatory conversion of
convertible subordinated notes on January 15, 1999. Excludes (i) 7,455,458
shares of Common Stock issuable upon the exercise of options outstanding at
a weighted average exercise price of $4.46 per share, (ii) 158,806 shares
of Common Stock issuable upon the exercise of warrants outstanding at a
weighted average exercise price of $2.10 per share, (iii) 2,591,582 shares
of Common Stock reserved for future grants under the Company's 1998 Equity
Incentive Plan, (iv) 206,250 shares reserved for future grants under the
Company's 1998 Non-Employee Directors' Stock Option Plan, (v) 500,000
shares of Common Stock reserved for issuance under the Company's 1998
Employee Stock Purchase Plan and (vi) 300,000 shares of Common Stock
issuable upon the exercise of outstanding warrants with a per share
exercise price equal to the initial public offering price. See
"Management--Employee Benefit Plans" and Notes 3 and 8 of Notes to
Financial Statements.
(2) Effective January 31, 1998, the Company changed its fiscal year-end
financial reporting period to a 52- or 53-week year ending on the last
Sunday in January. The Company elected not to restate its previous
reporting periods ending December 31.
(3) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in per share computations.
(4) Adjusted to reflect the sale of the 3,500,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $8.00 per
share and after deducting estimated underwriting discounts and commissions
and estimated offering expenses. See "Use of Proceeds" and
"Capitalization."
3
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
----------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
The Company............................................................... 5
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 22
Dividend Policy........................................................... 22
Capitalization............................................................ 23
Dilution.................................................................. 24
Selected Financial Data................................................... 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 26
Business.................................................................. 37
Management................................................................ 51
Certain Transactions...................................................... 60
Principal Stockholders.................................................... 61
Description of Capital Stock.............................................. 63
Shares Eligible for Future Sale........................................... 65
Underwriters.............................................................. 67
Legal Matters............................................................. 68
Experts................................................................... 69
Additional Information.................................................... 69
Index to Financial Statements............................................. F-1
</TABLE>
----------------
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports for the first three quarters of each year containing
unaudited interim financial information.
----------------
NVIDIA is a registered trademark of the Company and the Company has filed
for trademark protection for the NVIDIA logo. The Company and ST
Microelectronics, Inc. have filed jointly for trademark protection for RIVA
and RIVA128. All other trademarks or service marks appearing in this
Prospectus are the property of their respective owners.
----------------
Except as set forth in the financial statements or as otherwise indicated
herein, information in this Prospectus (i) gives effect to the conversion of
all of the Company's outstanding shares of Preferred Stock which will occur
automatically upon the closing of this offering, (ii) gives effect to the
mandatory conversion of outstanding convertible subordinated notes into shares
of Common Stock on January 15, 1999, and (iii) assumes that the Underwriters'
over-allotment option is not exercised. See "Description of Capital Stock" and
"Underwriters." The Company's fiscal years ended on December 31 from 1993 to
1997. Effective January 31, 1998, the Company changed its fiscal year-end
financial reporting period to a 52- or 53-week year ending on the last Sunday
in January. The Company elected not to restate its previous reporting periods
ending December 31. As a result, the first and fourth quarters of fiscal 1999
are 12- and 14-week periods, respectively, with the remaining quarters being
13-week periods. All general references to years relate to the above fiscal
years unless otherwise noted.
4
<PAGE>
THE COMPANY
NVIDIA designs, develops and markets 3D graphics processors and related
software that provide high performance interactive 3D graphics to the
mainstream PC market. The Company's graphics processors incorporate a 128-bit
graphics architecture that is designed to deliver a highly immersive,
interactive 3D experience with realistic imaging and stunning effects. The
Company's RIVA family of graphics processors including the RIVA TNT, provides
superior processing power at competitive prices and is architected to take
advantage of mainstream industry standards such as Microsoft Corporation's
("Microsoft") Direct3D application programming interface ("API"). The highly
integrated design of the Company's graphics processors combines high
performance 3D and 2D graphics on a single chip and provides a simpler and
lower cost graphics solution relative to competing solutions, including multi-
chip or multi-board 3D/2D graphics subsystems.
Interactive 3D graphics technology is emerging as one of the most
significant new computing developments since the introduction of the graphical
user interface. The visually engaging and interactive nature of 3D graphics
responds to consumers' demands for a convincing simulation of reality beyond
what is possible with traditional 2D graphics. The fundamental interactive
capability of 3D graphics is expected to make it a natural and compelling
medium for existing and emerging applications for entertainment, Internet,
business and education.
The Company believes that a PC's interactive 3D graphics capability
represents one of the primary means by which users differentiate among various
systems. PC users today can easily differentiate the quality of graphics and
prefer personal computers that provide a superior visual experience. These
factors have dramatically increased demand for 3D graphics processors; Mercury
Research estimates that 3D graphics will be standard in every PC unit shipped
by 2001. Mercury Research also estimates that 4.9 million 3D graphics
processors were sold worldwide in 1997 and 138 million will be sold worldwide
in 2001.
The Company's products allow users to enjoy a highly immersive, interactive
3D experience with compelling visual quality, realistic motion and complex
object and scene interaction at real-time frame rates. By providing this level
of performance at an affordable price to OEMs and end users, the Company
believes that it will accelerate the adoption of interactive 3D graphics
throughout the mainstream PC market. The Company's objective is to be the
leading supplier of high performance 3D graphics processors for PCs. The
Company's strategy to achieve this objective includes focusing on the
mainstream PC market, targeting leading OEM customers, extending its
technological leadership in 3D graphics and increasing its market share.
NVIDIA's products are used by six of the top ten PC OEMs--Compaq Computer
Corporation ("Compaq"), Dell Computer Corporation ("Dell"), Gateway 2000, Inc.
("Gateway"), International Business Machines Corporation ("IBM"), Micron
Technology, Inc. ("Micron") and Packard Bell NEC, Inc. ("Packard Bell NEC")--
as well as leading motherboard manufacturers such as Intel Corporation
("Intel") and leading add-in board manufacturers such as ASUSTeK Computer Inc.
("ASUSTeK"), Canopus Corporation ("Canopus"), Creative Technology Ltd.
("Creative"), Diamond Multimedia Systems, Inc. ("Diamond"), ELSA AG ("ELSA")
and Leadtek Research, Inc. ("Leadtek"). The RIVA family of graphics processors
has received significant industry validation and has enabled the Company's
customers to receive over 180 awards from recognized industry publications,
including PC Magazine, PC Computing, PC World, Computer Gaming World, PC Games
and CNET.
NVIDIA was incorporated in California in April 1993 and reincorporated in
Delaware in April 1998. The Company's executive offices are located at 3535
Monroe Drive, Santa Clara, California 95051, and its telephone number is (408)
615-2500. The Company's web site is located at www.nvidia.com. Information
contained on the Company's web site should not be deemed to be part of this
Prospectus.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered hereby. This Prospectus contains forward-
looking statements that involve risks and uncertainties. The Company's actual
results may differ materially from the results discussed in such forward-
looking statements. Factors that may cause such a difference include, but are
not limited to, those discussed below, in the sections entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere in this Prospectus.
Unpredictable and Fluctuating Operating Results. Many of the Company's
revenue components fluctuate and are difficult to predict, and its operating
expenses are largely independent of revenue in any particular period. It is
therefore difficult for the Company to accurately forecast revenue and profits
or losses. The Company believes that, even if it does achieve significant
sales of its products, quarterly and annual results of operations will be
affected by a variety of factors that could materially adversely affect
revenue, gross profit and results of operations. Factors that have affected
the Company's results of operations in the past, and are likely to affect the
Company's results of operations in the future, include, among others, demand
and market acceptance for the Company's products; the successful development
of next-generation products; unanticipated delays or problems in the
introduction or performance of next-generation products; market acceptance of
the products of the Company's customers; new product announcements or product
introductions by the Company's competitors; the Company's ability to introduce
new products in accordance with OEM design requirements and design cycles;
changes in the timing of product orders due to unexpected delays in the
introduction of products of the Company's customers or due to the life cycles
of such customers' products ending earlier than anticipated; fluctuations in
the availability of manufacturing capacity or manufacturing yields;
competitive pressures resulting in lower than expected average selling prices;
the volume of orders that are received and that can be fulfilled in a quarter;
the rescheduling or cancellation of customer orders; the unanticipated
termination of strategic relationships; seasonal fluctuations associated with
the tendency of PC sales to decrease in the second quarter and increase in the
second half of each calendar year; and the level of expenditures for research
and development and sales, general and administrative functions of the
Company. The Company experienced difficulties commencing volume production of
the RIVA128ZX graphics processor in March 1998 and the RIVA TNT graphics
processor in July 1998. These difficulties were primarily due to yield
problems that resulted in lower than expected revenues and higher
manufacturing costs during the quarter ended July 28, 1998. While these yield
problems were subsequently resolved, there can be no assurance that the
Company will not experience difficulties related to the production of current
or future products or that other factors will not delay the introduction or
volume sale of new products developed by the Company. The Company believes
that quarterly and annual results of operations also could be affected in the
future by other factors, including changes in the relative volume of sales of
the Company's products; seasonality in the PC market; the ability of the
Company to reduce the process geometry of its products; supply constraints for
the other components incorporated into its customers' products; the loss of a
key customer; a reduction in the amount of royalties received from ST
Microelectronics, Inc. ("ST"); changes in the pricing of dynamic random access
memory devices ("DRAMs") or other components; legal and other costs related to
defending intellectual property litigation; costs associated with protecting
the Company's intellectual property; costs related to acquiring or licensing
intellectual property; inventory write-downs; and foreign exchange rate
fluctuations. Any one or more of these factors could result in the Company
failing to achieve its expectations as to future revenue or net income.
Because most operating expenses are relatively fixed in the short term, the
Company may be unable to adjust spending sufficiently in a timely manner to
compensate for any unexpected sales shortfall, which could materially
adversely affect quarterly results of operations. The Company will be required
to reduce prices in response to competition or to pursue new market
opportunities. If new competitors, technological advances by existing
competitors or other competitive factors require the Company to invest
significantly greater resources than anticipated in research and development
or sales and marketing efforts, the Company's business, financial condition
and results of operations could be materially adversely affected. Accordingly,
the Company believes that period-to-period comparisons of its results of
operations should not be relied upon as an indication of future performance.
In addition, the results of any quarterly period are not indicative of results
to be expected for a full
6
<PAGE>
fiscal year. As a result of fluctuating operating results or other factors
discussed below, in certain future quarters the Company's results of
operations may be below the expectations of public market analysts or
investors. In such event, the market price of the Company's Common Stock would
be materially adversely affected. See "--Absence of Prior Trading Market;
Potential Volatility of Stock Price" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Limited Operating History; History of Losses; No Assurance of
Profitability. The Company has a limited operating history upon which
investors may evaluate the Company and its prospects. The Company's recent
revenue growth may not be sustainable and should not be considered indicative
of future revenue growth, if any. As of October 25, 1998, the Company's
accumulated deficit was approximately $17.1 million. Although the Company
generated net income in the quarters ended October 25, 1998 and December 31,
1997, it incurred losses in the quarters ended April 28, 1998 and July 26,
1998, in the first three quarters of fiscal 1997 and in each quarter of its
prior fiscal years. There can be no assurance that in the future the Company
will be profitable on a quarterly or annual basis. The Company's prospects
must be considered in light of the significant risks, challenges and
difficulties frequently encountered by companies in intensely competitive and
rapidly evolving markets such as the 3D graphics processor market and
semiconductor industry. To address these risks, the Company must, among other
things, successfully increase the scope of its operations, respond to
competitive and technological developments, continue to attract, retain and
motivate qualified personnel and continue to commercialize products
incorporating innovative technologies. There can be no assurance that the
Company will be successful in addressing these risks and challenges. See "--
Highly Competitive Environment; Intel's Entry into the Market," "--Dependence
on New Product Development; Need to Manage Product Transitions," "--Management
of Growth," "--Dependence on Key Personnel" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Dependence upon Acceptance of the Company's 3D Graphics Solution for the
Mainstream PC Market. The Company's success will depend in part upon broad
adoption of its 3D graphics processors for high performance 3D graphics in
mainstream PC applications. The market for 3D graphics processors has been
characterized by unpredictable and sometimes rapid shifts in the popularity of
products, often caused by the publication of competitive industry benchmark
results, changes in DRAM pricing and other changes in the total system cost of
add-in boards, as well as by severe price competition and by frequent new
technology and product introductions. Only a small number of products have
achieved broad market acceptance and such market acceptance, if achieved, is
difficult to sustain due to intense competition. Since the Company has no
other product line, the Company's business, financial condition and results of
operations would be materially adversely affected if for any reason its
current or future 3D graphics processors do not achieve widespread acceptance
in the mainstream PC market. If the Company is unable to complete the timely
development of or successfully and cost-effectively manufacture and deliver
products that meet the requirements of the mainstream PC market, the Company's
business, financial condition and results of operations would be materially
adversely affected. In addition, the PC industry is seasonal, and the Company
expects that its financial results in the future will be affected by such
seasonality.
Demand for the Company's products has been and will continue to be
significantly affected by actual and anticipated changes in the price and
supply of DRAM products or other components used with PC graphics processors.
In the spring of 1998, large supplies of synchronous DRAMs ("SDRAMs") resulted
in significant price declines for such components. This price decrease lowered
the total system cost to customers of competitive products that use such
SDRAMs, as compared to the Company's RIVA128 graphics processor, which was
initially designed to operate using only synchronous graphic DRAMS ("SGRAMs"),
which were and continue to be relatively more expensive than SDRAMs. While the
Company subsequently introduced a version of the RIVA128ZX graphics processor
that operates using SDRAMs or SGRAMs, and its current RIVA TNT also operates
using SDRAMs or SGRAMs, such unfavorable component price competition
negatively impacted sales of the Company's RIVA128ZX graphics processor
products during the quarter ended July 28, 1998. There can be no assurance
that the Company will be able to design new products to use components with
the lowest cost at the time of commercial release or that future fluctuations
in the price of components used by customers of PC
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graphics processors will not have a material adverse effect on the Company's
business, financial condition or results of operations.
The sub-$1,000 segment of the mainstream PC market has grown rapidly in
recent quarters. The Company currently does not have a product offering to
address this market segment. If the Company is unable to introduce a product
that addresses this market segment and the sub-$1,000 segment continues to
account for an increasing percentage of the units sold in the mainstream PC
market, the Company's business, financial condition or results of operations
could be materially adversely affected.
Highly Competitive Environment; Intel's Entry into the Market. The market
for 3D graphics processors for mainstream PCs in which the Company competes is
intensely competitive and is characterized by rapid technological change,
evolving industry standards and declining average selling prices. NVIDIA
believes that the principal factors of competition in this market are
performance, conformity to industry-standard APIs, software support, access to
customers and distribution channels, manufacturing capabilities, price of
graphics processors and total system costs of add-in boards. The Company
expects competition to increase both from existing competitors and new market
entrants with products that may be less costly than the Company's 3D graphics
processors or may provide better performance or additional features not
provided by the Company's products. There can be no assurance that the Company
will be able to compete successfully in the emerging mainstream PC 3D graphics
market.
NVIDIA's primary source of competition is from companies that provide or
intend to provide 3D graphics solutions for the mainstream PC market. These
include (i) new entrants in the 3D graphics processor market with existing
presence in the PC market, such as Intel, (ii) suppliers of graphics add-in
boards that utilize their internally developed graphics chips, such as ATI
Technologies, Inc. ("ATI") and Matrox Electronic Systems Ltd. ("Matrox"),
(iii) suppliers of 2D graphics chips that are introducing 3D functionality as
part of their existing solutions, such as S3 Incorporated ("S3") and Trident
Microsystems, Inc. ("Trident"), (iv) companies that have traditionally focused
on the professional market and provide high end 3D solutions for PCs and
workstations, including 3Dlabs Inc., Ltd. ("3Dlabs"), Real3D, Silicon
Graphics, Inc. ("SGI"), Evans & Sutherland Computer Corporation ("Evans") and
Intergraph Corporation ("Intergraph"), and (v) companies with strength in the
video game market, such as 3Dfx Interactive, Inc. ("3Dfx") and VideoLogic
Group plc ("VideoLogic").
In March 1998, Intel began shipping the i740, a 3D graphics accelerator that
is targeted at the mainstream PC market. Intel has significantly greater
resources than the Company, and there can be no assurance that the Company's
products will compete effectively against the i740 or any future products
introduced by Intel, that the Company will be able to compete effectively
against Intel or that Intel will not introduce additional products that are
competitive with the Company's products in either performance or price or
both. NVIDIA expects Intel to continue to invest heavily in research and
development and new manufacturing facilities, to maintain its position as the
largest manufacturer of PC microprocessors and one of the largest
manufacturers of motherboards, to increasingly dominate the PC platform and to
promote its product offerings through advertising campaigns designed to
engender brand loyalty among PC users. Intel may in the future develop
graphics add-in cards or graphics-enabled motherboards using its i740 3D
graphics accelerators or other graphics accelerators, which could directly
compete with graphics add-in cards or graphics-enabled motherboards that the
Company's customers may develop. In addition, due to the widespread industry
acceptance of Intel's microprocessor architecture and interface architecture,
including its Accelerated Graphics Port ("AGP"), Intel exercises significant
influence over the PC industry generally, and any significant modifications by
Intel to the AGP, the microprocessor or other aspects of the PC microprocessor
architecture could result in incompatibility with the Company's technology,
which would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, any delay in the
public release of information relating to such modifications could have a
material adverse effect on the Company's business, financial condition or
results of operations.
In April 1998, SGI and Intel announced a strategic relationship, which
includes a broad patent cross-license agreement. The Company believes that
this agreement will provide SGI with access to Intel processors for the
development of SGI workstations. In addition, the Company believes that under
the cross-license agreement Intel
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will have access to SGI graphics patents, which may allow Intel to compete
more effectively with the Company. SGI also may compete directly with the
Company as a result of this relationship with Intel. There can be no assurance
that the Company will be able to compete successfully against SGI or Intel.
SGI filed a patent infringement lawsuit against the Company in April 1998. See
"--Legal Proceedings" and "Business--Legal Proceedings."
In December 1998, Intel and S3 announced a strategic relationship, which
included a 10-year patent and technology cross-license agreement. Pursuant to
this agreement it was announced that S3 obtained a license to Intel's "P6"
system bus and future bus designs, which license will allow S3 to produce a
compatible integrated core and graphics chip. As a result of this
relationship, either party may become a more effective competitor of the
Company, which could have a material adverse effect on the Company's business,
financial condition or results of operations.
In addition to Intel, the Company competes with suppliers of graphics add-in
boards that utilize their internally developed graphics chips, such as ATI and
Matrox. NVIDIA also competes with companies that typically have operated in
the PC 2D graphics market and that now offer 3D graphics capability as an
enhancement to their 2D graphics solutions, such as S3 and Trident. Many of
these competitors have introduced 3D graphics functionality on new versions of
existing graphics chips. In addition, NVIDIA's competitors include companies
that traditionally have focused on the production of high end 3D graphics
systems targeted at the professional market, such as 3Dlabs, Real3D, SGI,
Evans and Intergraph. While these companies produce high performance 3D
graphics systems, they historically have done so at a significantly higher
price point than the Company and have focused on the professional and
engineering market. Some of these companies are developing lower cost versions
of their 3D graphics technology to bring workstation-like 3D graphics to
mainstream PCs, and there can be no assurance that the Company will be able to
compete successfully against them. NVIDIA also competes with companies that
have recently entered or are expected to enter the market with an integrated
3D/2D graphics solution, but which have not traditionally manufactured 2D
graphics solutions, such as 3Dfx and VideoLogic. In addition to the Company's
known competitors, the Company anticipates that there will be new entrants in
the graphics processor market, and there can be no assurance that the Company
will compete effectively against any such new competitors.
The market for 3D graphics processors is highly fragmented and undergoing a
period of consolidation. Several of the Company's competitors and customers
have merged with other industry participants in order to strengthen their
competitive position. For example, ATI recently acquired Chromatic Research
Inc., a media processor company, and Micron, one of the Company's OEM
customers, acquired Rendition, Inc., a 3D graphics accelerator company, to
explore embedded DRAM applications in the graphics arena. In addition, 3Dfx, a
3D graphics company and a competitor of the Company, recently announced the
execution of an acquisition agreement with STB Systems, Inc. ("STB"), an add-
in board manufacturer and significant customer of the Company. The Company
expects that as a result of the pending acquisition, sales to STB will be
reduced significantly from prior levels, and that STB may no longer continue
to be a significant customer of the Company. NVIDIA expects that consolidation
in the 3D graphics market will continue and there can be no assurance that
such consolidation will not involve any more of the Company's add-in-board
manufacturers, OEM customers or competitors. The further consolidation of the
Company's customers with other customers or with competitors of the Company
could result in a material decline in the Company's revenue, which would have
a material adverse effect on the Company's business, financial condition and
results of operations.
Several of the Company's current and potential competitors have
substantially greater financial, technical, manufacturing, marketing,
distribution and other resources, greater name recognition and market
presence, broader product lines for the PC market, longer operating histories,
lower cost structures and larger customer bases than the Company. As a result,
they may be able to adapt more quickly to new or emerging technologies and
changes in customer requirements. Regardless of the relative qualities of the
Company's products, the market power, product breadth and customer
relationships of its larger competitors, particularly Intel, can be expected
to provide such competitors with substantial competitive advantages. The
Company does not seek to compete on the basis of price alone, but may be
forced to lower prices to compete effectively. There can be no assurance that
the Company will be able to compete successfully in the emerging mainstream PC
3D graphics market.
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Dependence on New Product Development; Need to Manage Product
Transitions. The Company's business, financial condition and results of
operations will depend to a significant extent on its ability to successfully
develop new products for the 3D graphics market. The Company's add-in board
manufacturers and major OEM customers typically introduce new system
configurations as often as twice per year, typically based on spring and fall
design cycles. Accordingly, the Company's existing products must have
competitive performance levels or the Company must timely introduce new
products with such performance characteristics in order to be included in new
system configurations. The Company must anticipate the features and
functionality that consumers will demand, incorporate those features and
functionality into products that meet the exacting design requirements of PC
OEMs and add-in board manufacturers, price its products competitively and
introduce the products to the market within the limited window for PC OEM and
add-in board manufacturer design cycles. As a result, the Company believes
that significant expenditures for research and development will continue to be
required in the future. The success of new product introductions will depend
on several factors, including proper new product definition, timely completion
and introduction of new product designs, the ability of Taiwan Semiconductor
Manufacturing Co. ("TSMC"), the Company's primary manufacturer, and any
additional third-party manufacturers to effectively manufacture the Company's
new products, the ability of the Company to design products that effectively
utilize the process technologies of TSMC or any other third-party
manufacturers, the quality of any new products, differentiation of new
products from those of the Company's competitors and market acceptance of the
Company's and its customers' products. The Company's strategy is to utilize
the most advanced process technology appropriate for its products and
available from commercial third-party foundries. Use of such advanced
processes has in the past resulted in initial yield problems, as discussed
below. There can be no assurance that any new products the Company expects to
introduce will incorporate the features and functionality demanded by PC OEMs,
add-in board manufacturers and consumers of 3D graphics, will be successfully
developed or will be introduced in sufficient volumes within the appropriate
time to meet both the PC OEMs' design cycles and market demand. The Company
has in the past experienced delays in the development of some new products, as
discussed below. The failure by the Company to successfully develop, introduce
or achieve market acceptance for new 3D graphics products would have a
material adverse effect on the Company's business, financial condition and
results of operations.
As markets for the Company's 3D graphics processors develop and competition
increases, the Company anticipates that product life cycles will remain short
and average selling prices ("ASPs") will continue to decline. In particular,
ASPs and gross margins for the Company's 3D graphics processors are expected
to decline as each product matures and as per order unit volumes increase. As
a result, the Company will need to introduce new products and enhancements to
existing products to maintain overall average selling prices and gross
margins. In order for the Company's 3D graphics processors to achieve high
volumes, leading PC OEMs and add-in board manufacturers must select the
Company's 3D graphics processor for design into their products, and then
successfully complete the designs of their products and sell them. There can
be no assurance that the Company will successfully identify new product
opportunities, develop and bring to market in a timely fashion such new
products, that any such new products will be selected for design into PC OEMs'
and add-in board manufacturers' products, that such designs will be
successfully completed or that such products will be sold. As the complexity
of its products and the manufacturing process for such products increases,
there is an increasing risk that the Company will experience problems with the
performance of such products and that there will be delays in the development,
introduction or volume shipment of such products. The Company experienced
difficulties commencing volume production of the RIVA128ZX graphics processor
in March 1998 and the RIVA TNT graphics processor in July 1998. These
difficulties were due primarily to yield problems that resulted in lower than
expected revenues and higher manufacturing costs during the quarter ended July
28, 1998. While these yield problems were subsequently resolved, there can be
no assurance that the Company will not experience difficulties related to the
production of current or future products or that other factors will not delay
the introduction or volume sale of new products developed by the Company.
There also can be no assurance that the Company will be able to successfully
manage the production transition risks with respect to future products.
Failure to achieve any of the foregoing with respect to future products or
product enhancements could result in rapidly declining ASPs, reduced margins,
reduced demand for products or loss of market share, any of which could have a
material adverse effect on the Company's business, financial condition or
results of operations. In
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addition, there can be no assurance that technologies developed by others will
not render the Company's 3D graphics products non-competitive or obsolete, or
result in the Company holding excess inventory, either of which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
In the design and development of new products and product enhancements, the
Company relies on certain third-party software development tools. While the
Company currently is not dependent on any one vendor for the supply of such
tools, there can be no assurance that all or any of such tools will be readily
available in the future. For example, the Company has experienced delays in
the introduction of products in the past as a result of the inability of then-
available software development tools to fully simulate the complex features
and functionalities of the Company's products. There can be no assurance that
the design requirements necessary to meet consumer demands for more features
and greater functionality from 3D graphics products in the future will not
exceed the capabilities of any such software development tools. If the
software development tools used by the Company become unavailable or fail to
produce designs that meet consumer demands, the Company's business, financial
condition or results of operations could be materially adversely affected.
Legal Proceedings. On April 9, 1998, the Company was notified that SGI had
filed a patent infringement lawsuit against the Company in the United States
District Court for the District of Delaware. The suit alleges that the sale
and use of the Company's RIVA family of 3D graphics processors infringes a
United States patent held by SGI. The suit seeks unspecified damages
(including treble damages), an order permanently enjoining further alleged
infringement and attorneys' fees. On May 11, 1998, the Company was notified
that S3 had filed a patent infringement lawsuit against the Company in the
United States District Court for the Northern District of California. The suit
alleges that the sale and use of the Company's RIVA family of 3D graphics
processors infringes three United States patents held by S3. The suit seeks
unspecified damages (including treble damages), an order permanently enjoining
further alleged infringement and attorneys' fees. On September 21, 1998, the
Company was notified that 3Dfx had filed a patent infringement lawsuit against
the Company in the United States District Court for the Northern District of
California. The suit alleges that the sale and use of the Company's RIVA TNT
graphics processor infringes a United States patent held by 3Dfx. The suit
seeks unspecified damages (including treble damages), an order permanently
enjoining further alleged infringement and attorneys' fees. The Company has
filed answers to each suit and has filed counter-claims asserting that the
patents in each suit are neither infringed nor valid. The Company believes
that with respect to each of the patent claims at issue in such lawsuits,
either such claims are invalid or the Company's products do not infringe such
claims. This belief is based on the Company's investigation to date and, with
respect to the patent claims at issue in the suits by SGI and S3, upon an
opinion from patent counsel to the Company. The Company expects to receive an
opinion from patent counsel that its products do not infringe the patent
claims at issue in the 3Dfx lawsuit. The Company has and intends to continue
to defend itself vigorously with respect to all three lawsuits.
The litigation with SGI, S3 and 3Dfx has resulted, and the Company expects
that it will continue to result, in significant expense to the Company and
divert the efforts of the Company's technical and management personnel,
whether or not such litigation results in a favorable determination for the
Company. In the event of an adverse result in any suit, the Company could be
required to do one or more of the following: pay substantial damages
(including treble damages); permanently cease the manufacture, use and sale of
any infringing products; expend significant resources to develop non-
infringing technology; or obtain a license from SGI, S3 or 3Dfx for any
infringing technology. Any of these suits could result in limitations on the
Company's ability to market its products, delays and costs associated with
redesigning its products or payments of license fees or other payments to SGI,
S3 or 3Dfx, the occurrence of which would have a material adverse effect on
the Company's business, financial condition and results of operations.
Importance of Design Wins. The Company's future success will depend in large
part on achieving design wins, which entails having its existing and future
products chosen as the 3D graphics processors for hardware components or
subassemblies designed by PC OEMs and add-in board manufacturers. The
Company's add-in board manufacturers and major OEM customers typically
introduce new system configurations as often as twice per year, typically
based on spring and fall design cycles. Accordingly, the Company's existing
products must have competitive performance levels or the Company must timely
introduce new products with such performance
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characteristics in order to be included in new system configurations. The
failure to achieve one or more design wins would have a material adverse
effect on the Company's business, financial condition and results of
operations. The process of being qualified for inclusion in a PC OEM's product
can be lengthy and could cause the Company to miss a cycle in the demand of
end users for a particular product feature, which also could materially
adversely affect the Company's business, financial condition or results of
operations.
The Company's ability to achieve design wins will depend in part on its
ability to identify and ensure compliance with evolving industry standards.
Unanticipated changes in industry standards could render the Company's
products incompatible with products developed by major hardware manufacturers
and software developers, including Intel and Microsoft, which would require
the Company to invest significant time and resources to redesign its products
to ensure compliance with relevant standards. If the Company's products are
not in compliance with prevailing industry standards for a significant period
of time, the Company's ability to achieve design wins could be materially
adversely affected. The failure to achieve design wins, due to any of the
foregoing factors or otherwise, would result in the loss of any potential
sales volume that could be generated by such newly designed PC hardware
component or board subassembly and would give a competitive advantage to the
3D graphics processor manufacturer that achieved such design win.
Dependence on the PC Market. In 1997 and the nine months ended October 25,
1998, the Company derived all of its revenue from the sale or license of
products for use in PCs, and the Company expects to continue to derive
substantially all of its revenue from the sale or license of products for use
in PCs. The PC market is characterized by rapidly changing technology,
evolving industry standards, frequent new product introductions and
significant price competition, resulting in short product life cycles and
regular reductions of average selling prices over the life of a specific
product. Although the PC market has grown substantially in recent years, there
can be no assurance that such growth will continue. A reduction in sales of
PCs, or a reduction in the growth rate of such sales, would likely reduce
demand for the Company's products. Moreover, such changes in demand could be
large and sudden. Since PC manufacturers often build inventories during
periods of anticipated growth, they may be left with excess inventories if
growth slows or if they have incorrectly forecast product transitions. In such
cases, PC manufacturers may abruptly suspend substantially all purchases of
additional inventory from suppliers such as the Company until the excess
inventory has been absorbed. Any reduction in the demand for PCs generally, or
for a particular product that incorporates the Company's 3D graphic
processors, could have a material adverse effect on the Company's business,
financial condition or results of operations. During the spring of 1998, many
PC makers experienced reduced demand for their products, resulting in
increased inventories. Such market conditions resulted in reduced orders from
the Company's customers and negatively affected the Company's financial
results for the quarter ended July 26, 1998.
Dependence on Emerging Mainstream PC 3D Graphics Market. The Company's
success will depend in part upon the demand for 3D graphics for mainstream PC
applications. The market for 3D graphics on mainstream PCs has only recently
begun to emerge and is dependent on the future development of, and substantial
end-user and OEM demand for, 3D graphics functionality. As a result, there can
be no assurance that the market for mainstream PC 3D graphics computing will
continue to develop or grow at a rate sufficient to support the Company's
business. The development of the market for 3D graphics on mainstream PCs will
in turn depend on the development and availability of a large number of
mainstream PC software applications that support or take advantage of 3D
graphics capabilities. Currently there are only a limited number of such
software applications, most of which are games, and there can be no assurance
that a broader base of software applications will develop in the near term or
at all. Until very recently, the majority of multimedia PCs incorporated only
2D graphics acceleration technology, and as a result, the majority of graphics
applications currently available for mainstream PCs are written for 2D
acceleration technology. Consequently, there can be no assurance that a broad
market for full function 3D graphics on mainstream PCs will develop. If the
market for mainstream PC 3D graphics fails to develop or develops more slowly
than expected, the Company's business, financial condition and results of
operations would be materially adversely affected. See "--Dependence on the PC
Market."
Customer Concentration; Risks of Order and Shipment Uncertainties. The
Company has only a limited number of customers and its sales are highly
concentrated. The Company primarily sells its products to add-in
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board manufacturers, which incorporate graphics products in the boards they
sell to PC OEMs. Sales to STB and Diamond accounted for 63% and 31%,
respectively, of the Company's total revenue in 1997, and sales to STB,
Diamond, and Creative accounted for 40%, 28% and 12%, respectively, of the
Company's total revenue in the nine months ended October 25, 1998. Sales to
add-in board manufacturers primarily are dependent on achieving design wins
with leading PC OEMs, and the Company believes that the large majority of its
revenue in its most recent five quarters was attributable to products that
ultimately were incorporated into PCs sold by Compaq, Dell, Gateway, IBM,
Micron and Packard Bell NEC. The number of add-in board manufacturers and
leading PC OEMs is limited, and the Company expects that a small number of
add-in board manufacturers directly, and a small number of PC OEMs indirectly,
will continue to account for a substantial portion of its revenue for the
foreseeable future. In particular, the Company expects that sales to Creative
and Diamond will continue to account for a substantial portion of its revenue
for the foreseeable future. As a result, the Company's business, financial
condition and results of operations could be materially adversely affected by
the decision of a single PC OEM or add-in board manufacturer to cease using
the Company's products or by a decline in the number of products sold by a
single PC OEM or add-in board manufacturer or by a small number of customers.
In addition, there can be no assurance that revenue from add-in board
manufacturers or PC OEMs that have directly or indirectly accounted for
significant revenue in past periods, individually or as a group, will
continue, or if continued, will reach or exceed historical levels in any
future period. For example, 3Dfx, a 3D graphics company and a competitor of
the Company, recently announced the execution of an acquisition agreement with
STB, an add-in board manufacturer and significant customer of the Company. The
Company expects that as a result of the pending acquisition, sales to STB will
be reduced significantly from prior levels and that STB may no longer continue
to be a significant customer of the Company. Accordingly, there can be no
assurance that 3Dfx's pending acquisition of STB will not have a material
adverse effect on the Company's business, financial condition or results of
operations.
Certain of the Company's customers have experienced financial difficulties
in the past and may continue to experience financial difficulties. For
example, both Diamond and STB reported significant losses for their most
recent fiscal period and declines in revenues from the previous period.
Financial instability at Diamond, STB or any of the Company's other customers
could result in reduced sales to such customers or greater difficulty in
collecting accounts receivable from such customers, either of which could have
a material adverse effect on the Company's business, financial condition or
results of operations.
Substantially all of the Company's sales are made on the basis of purchase
orders rather than long-term agreements. As a result, the Company may commit
resources to the production of products without having received advance
purchase commitments from customers. Any inability to sell products to which
the Company has devoted significant resources could have a material adverse
effect on the business, financial condition or results of operations of the
Company. In addition, cancellation or deferral of product orders could result
in the Company holding excess inventory, which could have a material adverse
effect on the Company's profit margins and restrict its ability to fund its
operations. The Company recognizes revenue upon shipment of products to the
customer. Refusal by customers to accept shipped products, or delays or
difficulties in collecting accounts receivable could result in significant
charges against income, which could have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Management of Growth. The Company's rapid growth has placed, and is expected
to continue to place, a significant strain on the Company's managerial,
operational and financial resources. As of October 25, 1998, the Company had
184 employees as compared to 71 employees as of September 28, 1997, and the
Company expects that the number of its employees will increase substantially
over the next 12 months. The Company's financial and management controls,
reporting systems and procedures are very limited and will need to be upgraded
significantly. Although some new controls, systems and procedures have been
implemented, the Company's future growth, if any, will depend on its ability
to continue to implement and improve operational, financial and management
information and control systems on a timely basis, as well as its ability to
maintain effective cost controls, and any failure to do so effectively could
have a material adverse effect on the Company's business,
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financial condition or results of operations. Further, the Company will be
required to manage multiple relationships with various customers and other
third parties. There can be no assurance that the Company's systems, procedures
or controls will be adequate to support the Company's operations or that the
Company's management will be able to achieve the rapid execution necessary to
successfully implement its strategy. The Company's inability to effectively
manage any future growth would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Employees," "--Facilities" and "Management."
Dependence on Key Personnel. The Company's performance will be substantially
dependent on the performance of its executive officers and key employees. None
of the Company's officers or employees is bound by an employment agreement, and
the relationships of such officers and employees with the Company are,
therefore, at will. The Company does not have "key person" life insurance
policies on any of its employees. The loss of the services of any of its
executive officers, technical personnel or other key employees, particularly
Jen-Hsun Huang, the Company's President and Chief Executive Officer, would have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company's success will depend on its ability to
identify, hire, train and retain highly qualified technical and managerial
personnel. During the quarter ended October 25, 1998, both the Chief Financial
Officer of the Company and the Vice President of Operations left the Company.
The Company has recently filled such positions. Failure to attract, train,
assimilate or retain the necessary technical and managerial personnel would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Employees" and "Management."
Dependence on Third-Party Manufacturers; Absence of Manufacturing Capacity;
Manufacturing Risks. The Company does not manufacture the semiconductor wafers
used for its products and does not own or operate a wafer fabrication facility.
The Company's products require wafers manufactured with state-of-the-art
fabrication equipment and techniques. The Company in the past utilized ST and
currently utilizes TSMC to produce the Company's semiconductor wafers and
utilizes independent contractors to perform assembly, test and packaging. The
Company depends on these suppliers to allocate to the Company a portion of
their manufacturing capacity sufficient to meet the Company's needs, to produce
products of acceptable quality and at acceptable manufacturing yields, and to
deliver those products to the Company on a timely basis. There can be no
assurance that these manufacturers will be able to meet the Company's near-term
or long-term manufacturing requirements. During 1998, the Company experienced
difficulties in achieving volume production at TSMC of the Company's RIVA128ZX
and RIVA TNT graphics processors. As the Company's relationships with TSMC and
other manufacturing partners develop, yields or product performance could be
adversely affected due to difficulties associated with adapting the Company's
technology and product design to the proprietary process technology and design
rules of each manufacturer. The Company obtains manufacturing services on a
purchase order basis and TSMC has no obligation to provide the Company with any
specified minimum quantities of product. TSMC fabricates wafers for other
companies, including certain competitors of the Company, and could choose to
prioritize capacity for other users or reduce or eliminate deliveries to the
Company on short notice. Because the lead time needed to establish a strategic
relationship with a new manufacturing partner could be several months, there is
no readily available alternative source of supply for any specific product. The
Company believes that long-term market acceptance for the Company's products
will depend on reliable relationships with TSMC and any other manufacturers
used by the Company to ensure adequate product supply to respond to customer
demand.
There are many other risks associated with the Company's dependence upon
third-party manufacturers, including reduced control over delivery schedules,
quality assurance, manufacturing yields and cost; risks associated with
international operations; the potential lack of adequate capacity during
periods of excess demand; limited warranties on wafers supplied to the Company;
availability of trade credit on favorable terms; and potential misappropriation
of the Company's intellectual property. The Company is dependent primarily on
TSMC and expects in the future to continue to be dependent upon third-party
manufacturers to produce wafers of acceptable quality and with acceptable
manufacturing yields, to deliver those wafers to the Company and its
independent assembly and testing subcontractors on a timely basis and to
allocate to the Company a portion of
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their manufacturing capacity sufficient to meet the Company's needs. The
Company's wafer requirements represent a small portion of the total production
capacity of TSMC. Although the Company's products are designed using TSMC's
process design rules, there can be no assurance that TSMC will be able to
achieve or maintain acceptable yields or deliver sufficient quantities of
wafers on a timely basis or at an acceptable cost. Additionally, there can be
no assurance that TSMC will continue to devote resources to the production of
the Company's products, continue to advance the process design technologies on
which the manufacturing of the Company's products are based. Any such
difficulties would have a material adverse effect on the Company's business,
financial condition and results of operations.
ST has a worldwide license to incorporate the technology underlying the
RIVA128 and RIVA128ZX graphics processors (including the source code and
architecture) (the "128 Technology") in its own products, subject to certain
limitations on the modification of such technology, and a right to receive
software engineering and quality support from the Company for the 128
Technology through December 31, 1998. There can be no assurance that ST will
not develop and market products competitive with those of the Company that
contain additional features, better functionality and lower pricing. Because ST
has substantially greater financial, technical, manufacturing, marketing,
distribution and other resources than the Company, there can be no assurance
that the Company will be able to compete successfully against any such ST
product. The failure of the Company to successfully compete against any such ST
product could have a material adverse effect on the Company's business,
financial condition or results of operations. ST also has a worldwide license
to sell the RIVA128 and RIVA128ZX graphics processors. Royalty revenue from
sales of the RIVA128 graphics processor by ST represented approximately 6% of
the Company's total revenue in the nine months ended September 30, 1997 and
royalty revenue from sales of the RIVA128 graphics processor and a derivative
of the RIVA128ZX graphics processor represented 6% of the Company's total
revenue in the nine months ended October 25, 1998. The Company expects royalty
revenue from ST to decrease as a percentage of total revenue. See "--Dependence
on Third-Party Subcontractors for Assembly and Testing," "--Risks Associated
with International Operations" and "Business--Manufacturing."
Manufacturing Yields. The fabrication of semiconductors is a complex process.
Contaminants, defects in masks used to print circuits on wafers, difficulties
in the fabrication process and other factors can cause a substantial percentage
of wafers to be rejected or a significant number of die on each wafer to be
nonfunctional. These problems are difficult to diagnose and time-consuming and
expensive to remedy. As a result, semiconductor companies frequently encounter
difficulties in achieving acceptable product yields. When production of a new
product begins, the Company typically pays for wafers, which may or may not
have any functional products. Accordingly, the Company bears the financial risk
until production is stabilized. Once production is stabilized, the Company pays
for functional die only. The Company typically begins wafer production in
advance of stabilized yields. Failure to stabilize yields or failure to achieve
acceptable yields would materially adversely affect the Company's revenue,
gross profit and results of operations. For example, in December 1997, the
Company experienced low manufacturing yields at ST and in the six month period
ended October 25, 1998, the Company experienced low manufacturing yields at
TSMC. Any similar occurrences in the future could have a material adverse
effect on the Company's business, financial condition or results of operations.
Semiconductor manufacturing yields are a function both of product design,
which is developed largely by the Company, and process technology, which is
typically proprietary to the manufacturer. Since low yields may result from
either design or process technology failures, yield problems may not be
effectively determined or resolved until an actual product exists that can be
analyzed and tested to identify process sensitivities relating to the design
rules that are used. As a result, yield problems may not be identified until
well into the production process, and resolution of yield problems would
require cooperation by and communication between the Company and the
manufacturer. In the quarter ended July 26, 1998 and, to a lesser extent, the
quarter ended October 25, 1998, the Company experienced reduced yields with the
RIVA128ZX and the RIVA TNT graphics processors, which resulted in higher than
expected costs and lower revenues in the quarter ended July 26, 1998. The risk
of low yields is compounded by the offshore location of the Company's
manufacturers, increasing the
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effort and time required to identify, communicate and resolve manufacturing
yield problems. As the Company's relationships with TSMC and any additional
manufacturing partners develop, yields or product performance could be
adversely affected due to difficulties associated with adapting the Company's
technology and product design to the proprietary process technology and design
rules of each manufacturer. Because of the Company's potentially limited access
to wafer fabrication capacity from its manufacturers, any decrease in
manufacturing yields could result in an increase in the Company's per unit
costs and force the Company to allocate its available product supply among its
customers, thus potentially adversely impacting customer relationships as well
as revenue and gross profit. There can be no assurance that the Company's wafer
manufacturers will achieve or maintain acceptable manufacturing yields in the
future. The inability of the Company to achieve planned yields from its wafer
manufacturers could have a material adverse effect on the Company's business,
financial condition or results of operations. The Company also faces the risk
of product recalls or product returns resulting from design or manufacturing
defects that are not discovered during the manufacturing and testing process.
In the event of a significant number of product returns due to a defect or
recall, the Company's business, financial condition or results of operations
could be materially adversely affected. See "--Risks Associated with
International Operations."
Transition to New Manufacturing Process Technologies. The Company's strategy
is to utilize the most advanced process technology appropriate for its products
and available from commercial third-party foundries. Use of such advanced
processes may have greater risk of initial yield problems. Manufacturing
process technologies are subject to rapid change and require significant
expenditures for research and development. The Company continuously evaluates
the benefits of migrating to smaller geometry process technologies in order to
improve performance and reduce costs. The Company believes that the transition
of its products to increasingly smaller geometries will be important to its
competitive position, and the Company expects to migrate to .25 micron
technology with its next-generation graphics processor. Other companies in the
industry have experienced difficulty in migrating to new manufacturing
processes and, consequently, have suffered reduced yields, delays in product
deliveries and increased expense levels. There can be no assurance the Company
will not experience such difficulties and the corresponding adverse effects.
Moreover, the Company is dependent on its relationships with its third-party
manufacturers to migrate to smaller geometry processes successfully. No
assurance can be given that the Company will be able to migrate to new
manufacturing process technologies successfully or on a timely basis. Any such
failure by the Company could have a material adverse effect on its business,
financial condition or results of operations.
Dependence on Third-Party Subcontractors for Assembly and Testing. The
Company used ST in the past to assemble and test substantially all of the
Company's products. The Company's RIVA128ZX and RIVA TNT graphics processors
currently are assembled and tested by Amkor Technology Inc. ("Amkor"), which
has facilities in Korea and the Philippines. The Company's RIVA TNT graphics
processor is also assembled and tested by Siliconware Precision Industries
Company Ltd. ("Siliconware"). The Company does not have long-term agreements
with either of these subcontractors. As a result of its dependence on third-
party subcontractors for assembly and testing of its products, the Company does
not directly control product delivery schedules or product quality. Any product
shortages or quality assurance problems could increase the costs of
manufacture, assembly or testing of the Company's products and could have a
material adverse effect on the Company's business, financial condition or
results of operations. Due to the amount of time typically required to qualify
assemblers and testers, the Company could experience significant delays in the
shipment of its products if it is required to find alternative third parties to
assemble or test the Company's products or components. Any delays in delivery
of the Company's products could have a material adverse effect on the Company's
business, financial condition or results of operations. See "Business--
Manufacturing."
Risks Relating to Intellectual Property. The Company relies primarily on a
combination of patent, mask work protection, trademarks, copyrights, trade
secret laws, employee and third-party nondisclosure agreements and licensing
arrangements to protect its intellectual property. The Company has 22 patents
issued and 18 patent applications pending in the United States. Such issued
patents have expiration dates from May 2015 to November 2016. The issued
patents and pending patent applications relate to technology developed by the
Company in
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connection with the development of its 3D graphics processors, including the
RIVA family of graphics processors. The Company has no foreign patents or
patent applications. There can be no assurance that the Company's pending
patent applications or any future applications will be approved, or that any
issued patents will provide the Company with competitive advantages or will not
be challenged by third parties, or that the enforcement of patents of others
will not have an adverse effect on the Company's ability to do business. In
addition, there can be no assurance that others will not independently develop
substantially equivalent intellectual property or otherwise gain access to the
Company's trade secrets or intellectual property, or disclose such intellectual
property or trade secrets, or that the Company can meaningfully protect its
intellectual property. A failure by the Company to effectively protect its
intellectual property could have a material adverse effect on the Company's
business, financial condition or results of operations. The Company has
licensed technology from third parties for incorporation in the Company's
graphics processors, and it expects to continue to enter into such agreements
for future products. Such licenses may result in royalty payments to third
parties, the cross-license of technology by the Company or payment of other
consideration. If such arrangements are not concluded on commercially
reasonable terms, the Company's business, financial condition or results of
operations could be materially adversely affected.
The Company attempts to protect its trade secrets and other proprietary
information through confidentiality agreements with manufacturers and other
partners, proprietary information agreements with employees and consultants and
other security measures. The Company also relies on trademarks and trade secret
laws to protect its intellectual property. Despite these efforts, there can be
no assurance that others will not gain access to the Company's trade secrets,
or that the Company can meaningfully protect its intellectual property. In
addition, effective trade secret protection may be unavailable or limited in
certain foreign countries. Although the Company intends to protect its rights
vigorously, there can be no assurance that such measures will be successful.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which has resulted in
significant and often protracted and expensive litigation. The 3D graphics
market in particular has been characterized recently by the aggressive pursuit
of intellectual property positions, and the Company expects its competitors to
continue to pursue aggressive intellectual property positions. In April 1998,
SGI filed a patent infringement lawsuit against the Company, in May 1998, S3
filed a patent infringement lawsuit against the Company and in September 1998,
3Dfx filed a patent infringement lawsuit against the Company. See "--Legal
Proceedings." In addition, the Company from time to time has received notices
alleging that the Company has infringed patents or other intellectual property
rights owned by third parties. Based upon the Company's evaluation of the
circumstances, it may seek to obtain a license. In any given case, there is a
risk that a license will not be available on terms that the Company considers
reasonable, or that litigation will ensue. The Company currently has three
patent infringement lawsuits pending against it, as discussed above. The
Company expects that, as the number of hardware and software patents issued
continues to increase, and as competition in the markets addressed by the
Company intensifies, the volume of intellectual property claims such as these
also will increase. ST has certain patent licenses that in some cases may allow
ST to manufacture the Company's products without infringing third-party
patents. As the Company's products are manufactured by TSMC or other
manufacturers, such licenses will no longer benefit the Company and therefore
the risk of a third-party claim of patent infringement against the Company will
increase. In the event infringement claims are made against the Company, the
Company may seek licenses under such patents or other intellectual property
rights. However, there can be no assurance that licenses will be offered or
that the terms of any offered licenses will be acceptable to the Company. The
failure to obtain a license from a third party for technology used by the
Company could cause the Company to incur substantial liabilities and to suspend
the manufacture of products. Furthermore, the Company may initiate claims or
litigation against third parties for infringement of the Company's proprietary
rights or to establish the validity of the Company's proprietary rights. The
Company has agreed to indemnify certain customers for claims of infringement
arising out of sale of the Company's product. Litigation by or against the
Company or such customers concerning infringement would likely result in
significant expense to the Company and divert the efforts of the Company's
technical and management personnel, whether or not such litigation results in a
favorable determination for the Company. For example, the SGI, S3 and 3Dfx
lawsuits have resulted, and will continue to result, in significant expense to
the
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Company. In the event of an adverse result in the SGI, S3, 3Dfx or other
litigation, the Company could be required to pay substantial damages (which
could include treble damages), cease the manufacture, use and sale of
infringing products, expend significant resources to develop non-infringing
technology, discontinue the use of certain processes or obtain licenses for the
infringing technology. There can be no assurance that the Company would be
successful in such development or that such licenses would be available on
reasonable terms, or at all, and any such development or license could require
expenditures by the Company of substantial time and other resources. Although
patent disputes in the semiconductor industry have often been settled through
cross-licensing arrangements, there can be no assurance that, in the event that
SGI, S3, 3Dfx or any other third party makes a successful claim against the
Company or its customers, a cross-licensing arrangement could be reached. If
such a license is not made available to the Company on commercially reasonable
terms, the Company's business, financial condition or results of operations
could be materially adversely affected.
There can be no assurance that infringement claims by third parties or claims
for indemnification by customers or end users of the Company's products
resulting from infringement claims will not be asserted in the future or that
such possible assertions or any of the assertions currently raised in the SGI,
S3 and 3Dfx litigation, if proven to be true, will not materially adversely
affect the Company's business, financial condition or results of operations.
Any limitations on the Company's ability to market its products, or delays and
costs associated with redesigning its products or payments of license fees to
third parties, or any failure by the Company to develop or license a substitute
technology on commercially reasonable terms, any of which may result from the
SGI, S3 or 3Dfx litigation, could have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Business--Patents and Proprietary Rights."
Risk of Product Defects and Incompatibilities; Product Liability. Products as
complex as those offered by the Company may contain defects or failures when
introduced or when new versions or enhancements to existing products are
released. The Company has in the past discovered software defects and
incompatibilities with customers' hardware in certain of its products and may
experience delays or lost revenue to correct any new defects in the future.
Although the Company has not experienced material adverse effects resulting
from any such bugs, defects, failures or incompatibilities to date, there can
be no assurance that, despite testing by the Company, errors will not be found
in new products or releases after commencement of commercial shipments in the
future, which could result in loss of market share or failure to achieve market
acceptance. In addition, the Company's products typically go through only one
verification cycle prior to beginning volume production and distribution of
such products. As a result, the Company's products may contain defects or flaws
that are undetected prior to volume production and distribution. The widespread
production and distribution of defective products could have a material adverse
impact on the Company's business, financial condition or results of operations.
See "Business--NVIDIA Architecture, Products and Products under Development."
The Company's products are an integrated component of both PCs and business
workstations. Although the Company has not experienced any product liability
claims to date, the sale and support of products by the Company may entail the
risk of such claims. In addition, any failure by the Company's products or
software to properly perform could result in claims against the Company by its
customers. The Company maintains insurance to protect against certain claims
associated with the use of its products, but there can be no assurance that its
insurance coverage would adequately cover any claim asserted against the
Company. A successful claim brought against the Company that is in excess of,
or excluded from, its insurance coverage, could have a material adverse effect
on the Company's business, financial condition or results of operations. In
addition, even claims that are ultimately unsuccessful could result in the
Company's expenditure of funds in litigation and management time and resources.
The Company has agreed to indemnify certain of its customers against patent
infringement, warranty and certain product defect claims. There can be no
assurance that the Company will not be subject to material claims in the
future, that such claims will not result in liability in excess of its
insurance coverage, that the Company's insurance will cover such claims or that
appropriate insurance will continue to be available to the Company in the
future at commercially reasonable rates.
Erosion of Average Selling Prices. The semiconductor industry, including the
3D graphics processor industry, has been characterized, and is likely to
continue to be characterized by, rapid erosion of average selling
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prices due to a number of factors, including rapid technological change,
price/performance enhancements and product obsolescence. The Company
anticipates that ASPs and gross margins for its products will decrease over
product life cycles, due to competitive pressures and volume pricing
agreements. Decreasing ASPs could cause the Company to experience decreased
revenue even though the number of units sold is increasing. As a result, the
Company may experience substantial period-to-period fluctuations in future
operating results due to ASP erosion. Therefore, the Company must continue to
develop and introduce on a timely basis next-generation products and
enhancements to existing new products that incorporate additional or new
features and functionalities and that can be sold at higher ASPs. Failure to
achieve the foregoing could cause the Company's revenue and gross margins to
decline, which would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Risks Associated with International Operations. The Company's reliance on
foreign third-party manufacturing, assembly and testing operations subjects it
to a number of risks associated with conducting business outside of the United
States. These risks include unexpected changes in, or impositions of,
legislative or regulatory requirements, delays resulting from difficulty in
obtaining export licenses for certain technology, tariffs, quotas and other
trade barriers and restrictions, longer payment cycles, potentially adverse
taxes, the burdens of complying with a variety of foreign laws and other
factors beyond the Company's control. The Company also is subject to general
political risks in connection with its international trade relationships.
Although the Company has not to date experienced any material adverse effect on
its business, financial condition or results of operations as a result of such
regulatory, political and other factors, there can be no assurance that such
factors will not have a material adverse effect on the Company's business,
financial condition or results of operations in the future or require the
Company to modify its current business practices. In addition, the laws of
certain foreign countries in which the Company's products are or may be
manufactured or sold, including various countries in Asia, may not protect the
Company's products or intellectual property rights to the same extent as do the
laws of the United States and thus make the possibility of piracy of the
Company's technology and products more likely. Currently, all of the Company's
arrangements with third-party manufacturers provide for pricing and payment in
U.S. dollars, and to date the Company has not engaged in any currency hedging
activities, although it may do so in the future. There can be no assurance that
fluctuations in currency exchange rates will not have a material adverse effect
on the Company's business, financial condition or results of operations in the
future.
Cyclical Nature of the Semiconductor Industry. The semiconductor industry
historically has been characterized by rapid technological change, cyclical
market patterns, significant ASP erosion, fluctuating inventory levels,
alternating periods of overcapacity and capacity constraints, variations in
manufacturing costs and yields and significant expenditures for capital
equipment and product development. In addition, the industry has experienced
significant economic downturns at various times, characterized by diminished
product demand and accelerated erosion of ASPs. The Company may experience
substantial period-to-period fluctuations in results of operations due to
general semiconductor industry conditions.
Future Capital Needs; Uncertainty of Additional Funding. If the Company
continues to increase production of its products, it will be required to invest
significant working capital in inventory and accounts receivable. The Company
also intends to continue to invest heavily in research and development for its
existing products and for new product development. The Company's future
liquidity and capital requirements will depend upon numerous factors, including
the costs and timing of expansion of research and product development efforts
and the success of these development efforts, the costs and timing of expansion
of sales and marketing activities, the ability to collect receivables from its
customers, the ability to obtain favorable credit terms from its vendors, the
extent to which the Company's existing and new products gain market acceptance,
competing technological and market developments, the costs involved in
maintaining and enforcing patent claims and other intellectual property rights,
available borrowings under line of credit arrangements and other factors. The
Company believes that the proceeds from this offering, together with the
Company's current cash balances, bank credit line and cash generated from
operations, will be sufficient to meet the Company's operating and capital
requirements for
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at least the next 12 months. However, there can be no assurance that the
Company will not require additional financing within this time frame. The
Company may be required to raise additional funds through public or private
financing, strategic relationships or other arrangements. There can be no
assurance that such additional funding, if needed, will be available on terms
attractive to the Company, or at all. Furthermore, any additional equity
financing may be dilutive to stockholders, and additional debt financing, if
available, may involve additional restrictive covenants. Strategic
arrangements, if necessary to raise additional funds, may require the Company
to relinquish its rights to certain of its technologies or products. The
failure of the Company to raise capital when needed could have a material
adverse effect on the Company's business, financial condition or results of
operations. See "--Unpredictable and Fluctuating Operating Results," "--Limited
Operating History; History of Losses; No Assurance of Profitability," "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Year 2000 Compliance. The Year 2000 issue is the result of computer programs
written using two digits rather than four to define the applicable year (the
"Year 2000 Issue"). Computer programs that have such date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
The Company is heavily dependent upon the proper functioning of its own
computer or data-dependent systems. This includes, but is not limited to, its
information systems in business, finance, operations and service. Any failure
or malfunctioning on the part of these or other systems could adversely affect
the Company in ways that are not currently known, discernible, quantifiable or
otherwise anticipated by the Company. In addition, the Company has
relationships with, and is to varying degrees dependent upon, a large number of
third parties that provide information, goods and services to the Company and
manufacture the Company's graphics processors. The Company's business and
results of operations could be materially adversely affected if its key
suppliers were to experience Year 2000 Issues that caused them to delay
manufacturing or shipment of finished product to the Company. In addition, the
Company's results of operations could be materially adversely affected if any
of the Company's key customers encounter Year 2000 Issues that cause them to
delay or cancel substantial purchase orders or delivery of the Company's
product.
The Company's graphics processors and related software do not depend on any
date-sensitive functions in order to perform in accordance with their
respective designs and their functions will not be negatively affected by the
Year 2000 Issue. The Company's products are ultimately used with a number of
different hardware and software products, and to the extent that such third-
party products are not Year 2000 compliant, the interoperability of the
Company's products may be adversely affected. Given the number of third-party
components and the Company's limited resources, the Company does not expect to
review such third-party products.
There can be no assurance that the Company will be able to adequately address
the Year 2000 Issue in a timely manner or to upgrade any or all of its major
systems in accordance with such plan. If the Company's modifications or
upgrades or modifications by key suppliers or customers are not completed in a
timely manner or are not successful, the Company may be unable to conduct its
business, which would have a material adverse effect on the operations and
financial position of the Company. In addition, there can be no assurance that
any such upgrades will effectively address the Year 2000 Issue. Furthermore,
there can be no guarantee that the systems of other companies on which the
Company relies for the manufacture of its products will be timely converted, or
that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the Company. The Company cannot predict the extent of any such
impact.
There can be no assurance that the Company or any third party will not
encounter any unforeseen problems with respect to any of the Company's systems,
which unforeseen problems could have a material adverse effect on the
operations and financial position of the Company. The Company is currently
evaluating possible action to
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be taken in the event that the assessment of the Year 2000 Issue is not
successfully completed on a timely basis, but has not yet established a formal
contingency plan.
Control by Existing Stockholders. Upon completion of this offering, the
Company's executive officers and directors, together with entities affiliated
with such individuals, will beneficially own approximately 55% of the Company's
Common Stock (approximately 54% if the Underwriters' over-allotment option is
exercised in full). Accordingly, these stockholders will be able to exercise
control over matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. These
transactions include proxy contests, mergers involving the Company, tender
offers, open market purchase programs or other purchases of Common Stock that
could give stockholders of the Company the opportunity to realize a premium
over the then-prevailing market price for their shares of Common Stock. See
"Principal Stockholders."
Absence of Prior Trading Market; Potential Volatility of Stock Price. Prior
to this offering, there has been no public market for the Common Stock. There
can be no assurance that an active trading market will develop or, if one
develops, that it will be maintained. The initial public offering price of the
Common Stock will be established by negotiation among the Company and the
Underwriters. See "Underwriters" for factors to be considered in determining
the initial public offering price. The market price of the shares of Common
Stock could be subject to significant fluctuations in response to the Company's
operating results, announcements of new products by the Company or its
competitors, and other factors, including general economic and market
conditions. In addition, the stock market in recent months has experienced and
continues to experience extreme price and volume fluctuations, which have
affected the market price of the stock of many companies, and particularly
technology companies, and which have often been unrelated or disproportionate
to the operating performance of these companies. These fluctuations, as well as
a shortfall in sales or earnings compared to securities analysts expectations,
changes in analysts recommendations or projections or general economic and
market conditions, may adversely affect the market price of the Common Stock.
In the past, securities class action litigation has often been instituted
following periods of volatility in the market price for a company's securities.
Such litigation could result in substantial costs and a diversion of management
attention and resources, which could have a material adverse effect on the
Company's business, financial condition or results of operations.
Anti-Takeover Provisions. The Company's Certificate of Incorporation (the
"Certificate") authorizes the Board of Directors to issue up to 2,000,000
shares of Preferred Stock and to determine the powers, designations,
preferences, rights, qualifications, limitations and restrictions, including
voting rights, of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The Certificate and Bylaws, among other
things, provide for a classified Board of Directors, require that stockholder
actions occur at duly called meetings of the stockholders, limit who may call
special meetings of stockholders and require advance notice of stockholder
proposals and director nominations. These and other provisions could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of the Company, discourage a hostile bid or delay,
prevent or deter a merger, acquisition or tender offer in which the Company's
stockholders could receive a premium for their shares, or a proxy contest for
control of the Company or other change in the Company's management. See
"Management" and "Description of Capital Stock."
Shares Eligible for Future Sale. The sale of a substantial number of shares
of Common Stock in the public market following this offering could adversely
affect the market price of the Common Stock. Upon the closing of this offering,
the Company will have outstanding an aggregate of 28,565,226 shares of Common
Stock, (assuming no exercise of outstanding options and warrants), of which
25,065,226 shares of Common Stock are "Restricted Shares" subject to
restrictions under the Securities Act of 1933, as amended (the "Securities
Act"). Restricted Shares may be sold in the public market only if registered or
if they qualify for an exemption from registration under Rules 144, 144(k) or
701 promulgated under the Securities Act. Holders of certain shares of the
Company's Common Stock, including all officers and directors, have agreed (the
"Lock-Up Agreements"), subject to certain exceptions, not to offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or
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dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
(whether such shares or any such securities are then owned by such person or
are thereafter acquired directly from the Company), or to enter into any swap
or similar arrangement that transfers, in whole or in part, the economic risks
of ownership of the Common Stock (a "disposition"), without the prior written
consent of Morgan Stanley & Co. Incorporated for a period of 180 days after
the date of this Prospectus. As a result of such contractual restrictions and
the provisions of Rule 144 and 701, the Restricted Shares will be available
for sale in the public market as follows: (i) 147,500 shares will be eligible
for immediate sale on the date of this Prospectus; (ii) 4,852,500 shares will
be eligible for sale 90 days after the date of this Prospectus; (iii)
17,727,849 shares will be eligible for sale upon expiration of lock-up
agreements 180 days after the date of this Prospectus and (iv) the remaining
shares will be eligible for sale from time to time thereafter upon expiration
of the Company's right to repurchase such shares. In addition, certain
stockholders of the Company have the right to register shares of Common Stock
for sale in the public market, and the Company intends to register shares of
Common Stock authorized for issuance under the Company's equity incentive
plans shortly following the closing of this offering. See "Description of
Capital Stock" and "Shares Eligible for Future Sale."
Dilution; Absence of Cash Dividends. Purchasers of the shares of Common
Stock offered hereby will experience immediate and substantial dilution in the
net tangible book value of their investment from the initial public offering
price. Additional dilution will occur upon exercise of outstanding options and
warrants. See "Dilution" and "Shares Eligible for Future Sale." The Company
has never paid any dividends and does not anticipate paying dividends in the
foreseeable future. See "Dividend Policy."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,500,000 shares of
Common Stock offered hereby are estimated to be approximately $24.2 million
($28.1 million if the Underwriters' over-allotment option is exercised in
full), at an assumed initial public offering price of $8.00 per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses. Approximately $5.1 million of the net proceeds are expected
to be used to repay in full amounts outstanding under a credit facility. The
balance of the net proceeds will be used for general corporate purposes,
including capital expenditures and working capital. The Company expects to
spend approximately $10.0 million for capital expenditures in fiscal 2000,
primarily for capital leases and the purchase of computer and engineering
workstations. Such capital expenditures are expected to be funded by a portion
of the net proceeds from this offering, together with existing cash balances
and anticipated cash flow from operations. The amounts and timing of the
Company's actual expenditures will depend upon numerous factors, including the
status of the Company's research and development efforts, the amount of cash
generated by the Company's operations, the level of the Company's sales and
marketing activities and the impact of competition. Pending such uses, the
Company intends to invest the net proceeds of this offering in short-term,
investment-grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never paid any cash dividends on its capital stock and does
not anticipate paying cash dividends for the foreseeable future.
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 25, 1998 (i) on an actual basis, (ii) on a pro forma basis giving
effect to the conversion of all outstanding shares of Preferred Stock into
shares of Common Stock and the mandatory conversion of convertible notes at
January 15, 1999 and (iii) on a pro forma as adjusted basis to reflect the
receipt by the Company of the estimated net proceeds from the sale of the
3,500,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $8.00 per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
OCTOBER 25, 1998
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital lease obligations, less current
portion....................................... $ 2,032 $ 2,032 $ 2,032
-------- -------- --------
Stockholders' equity:
Mandatorily convertible notes................ 11,000 -- --
Preferred Stock, $.001 par value; actual--
10,000,000 shares authorized, 9,327,087
shares issued and outstanding; pro forma and
pro forma as adjusted-- 2,000,000 shares
authorized, no shares issued and
outstanding................................. 9 -- --
Common Stock, $.001 par value; 200,000,000
shares authorized; actual--14,166,710 shares
issued and outstanding; pro forma--
25,065,226 shares issued and outstanding;
pro forma as adjusted--28,565,226 shares
issued and outstanding(1)................... 14 25 29
Additional paid-in capital................... 25,471 36,469 60,705
Deferred compensation........................ (1,126) (1,126) (1,126)
Accumulated deficit.......................... (17,074) (17,074) (17,074)
-------- -------- --------
Total stockholders' equity................. 18,294 18,294 42,534
-------- -------- --------
Total capitalization..................... $ 20,326 $ 20,326 $ 44,566
======== ======== ========
</TABLE>
- --------
(1) Excludes (i) 7,455,458 shares of Common Stock issuable upon the exercise
of options outstanding at a weighted average exercise price of $4.46 per
share, (ii) 158,806 shares of Common Stock issuable upon the exercise of
warrants outstanding at a weighted average exercise price of $2.10 per
share, (iii) 2,591,582 shares reserved for future grants under the
Company's 1998 Equity Incentive Plan, (iv) 206,250 shares reserved for
future grants under the Company's 1998 Non-Employee Directors' Stock
Option Plan, (v) 500,000 shares reserved for issuance under the Company's
1998 Employee Stock Purchase Plan and (vi) 300,000 shares of Common Stock
issuable upon the exercise of outstanding warrants with a per share
exercise price equal to the initial public offering price. See
"Management--Employee Benefit Plans" and Notes 3 and 8 of Notes to
Financial Statements.
23
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of October 25, 1998
was approximately $18.3 million or $.73 per share of Common Stock. Pro forma
net tangible book value per share is equal to the Company's total tangible
assets less its total liabilities divided by the number of shares of Common
Stock outstanding (assuming the conversion of all outstanding shares of
Preferred Stock into Common Stock). After giving effect to the sale of the
3,500,000 shares of Common Stock offered hereby (at an assumed initial public
offering price of $8.00 per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses), the as adjusted
net tangible book value of the Company as of October 25, 1998 would have been
$42.5 million, or $1.49 per share. This represents an immediate increase in
pro forma net tangible book value of $.76 per share to existing stockholders
and an immediate dilution of $6.51 per share to new public investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $8.00
Pro forma net tangible book value per share as of October 25,
1998.......................................................... $.73
Increase in pro forma net tangible book value per share
attributable to new public investors.......................... .76
----
As adjusted net tangible book value per share after the
offering........................................................ 1.49
-----
Dilution per share to new public investors....................... $6.51
=====
</TABLE>
The following table summarizes, on a pro forma basis as of October 25, 1998,
the difference between the number of shares of Common Stock purchased from the
Company (assuming the conversion of all outstanding shares of Preferred Stock
and the convertible subordinated notes into Common Stock), the total cash
consideration paid and the average price per share paid by the existing
stockholders and by the new public investors (at an assumed initial public
offering price of $8.00 per share and before deducting estimated underwriting
discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
------------------ ------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 25,065,226 87.7% $36,494,000 56.6% $1.46
New public investors............. 3,500,000 12.3 28,000,000 43.4 $8.00
---------- ------ ----------- ------
Total.......................... 28,565,226 100.0% $64,494,000 100.0%
========== ====== =========== ======
</TABLE>
The foregoing excludes 7,455,458 shares issuable upon exercise of
outstanding options not immediately exercisable with a weighted average
exercise price of $4.46 per share, of which 592,403 shares are immediately
exercisable as of October 25, 1998 with a weighted average exercise price of
$4.78 per share, and 158,806 shares of Common Stock issuable upon the exercise
of outstanding warrants with a weighted average exercise price of $2.10 per
share. The foregoing also excludes warrants to purchase 300,000 shares of
Common Stock at the initial public offering price, which the Company undertook
to grant in connection with a manufacturing agreement. To the extent that
outstanding options or warrants are exercised, there will be further dilution
to new investors. See "Management--Employee Benefit Plans" and Note 3 of Notes
to Financial Statements.
24
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Company's financial statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included herein. The statement of operations data for the years ended December
31, 1995, 1996 and 1997, the one month ended January 31, 1998, and the nine
months ended October 25, 1998 and the balance sheet data as of December 31,
1996 and 1997, January 31, 1998, and October 25, 1998 have been derived from
and should be read in conjunction with the audited financial statements of the
Company and the notes thereto included elsewhere in this Prospectus that have
been audited by KPMG Peat Marwick LLP, independent auditors. The statement of
operations data for the period from inception (April 5, 1993) to December 31,
1993 and the year ended December 31, 1994 are derived from audited financial
statements and the notes thereto not included in this Prospectus. The balance
sheet data as of December 31, 1993, 1994 and 1995 are derived from audited
financial statements and the notes thereto not included in this Prospectus.
The selected statement of operations data for the one month ended January 26,
1997 and the nine months ended September 28, 1997 are derived from unaudited
financial statements included elsewhere in this Prospectus that have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation as of such date. The
operating results for the nine months ended October 25, 1998 are not
necessarily indicative of the results to be expected for any other interim
period or any future fiscal year.
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED DECEMBER 31, ONE MONTH ENDED NINE MONTHS ENDED
INCEPTION ---------------------------------- ----------------------- -------------------------
(APRIL 5, 1993) TO JANUARY 26, JANUARY 31, SEPTEMBER 28, OCTOBER 25,
DECEMBER 31, 1993 1994 1995 1996 1997 1997 1998 1997 1998
------------------ ------- ------- ------- ------- ----------- ----------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue:
Product......... $ -- $ -- $ 1,103 $ 3,710 $27,280 $ 190 $11,420 $ 5,225 $86,755
Royalty......... -- -- 79 202 1,791 -- 1,911 312 5,945
------- ------- ------- ------- ------- ------ ------- ------- -------
Total revenue.... -- -- 1,182 3,912 29,071 190 13,331 5,537 92,700
Cost of revenue.. -- -- 1,549 3,038 21,244 127 10,071 4,906 67,400
------- ------- ------- ------- ------- ------ ------- ------- -------
Gross profit
(loss).......... -- -- (367) 874 7,827 63 3,260 631 25,300
------- ------- ------- ------- ------- ------ ------- ------- -------
Operating
expenses:
Research and
development..... 204 361 2,426 1,218 7,103 415 1,121 3,518 16,656
Sales, general
and
administrative.. 302 990 3,677 2,649 4,183 164 640 2,024 12,544
------- ------- ------- ------- ------- ------ ------- ------- -------
Total operating
expenses........ 506 1,351 6,103 3,867 11,286 579 1,761 5,542 29,200
------- ------- ------- ------- ------- ------ ------- ------- -------
Operating income
(loss).......... (506) (1,351) (6,470) (2,993) (3,459) (516) 1,499 (4,911) (3,900)
Interest and
other income
(expense), net.. 22 (10) 93 (84) (130) (6) (18) (102) 60
------- ------- ------- ------- ------- ------ ------- ------- -------
Income (loss)
before income
tax expense
(benefit)....... (484) (1,361) (6,377) (3,077) (3,589) (522) 1,481 (5,013) (3,840)
Income tax
expense
(benefit)....... -- -- -- -- -- -- 134 -- (308)
------- ------- ------- ------- ------- ------ ------- ------- -------
Net income
(loss).......... $ (484) $(1,361) $(6,377) $(3,077) $(3,589) $ (522) $ 1,347 $(5,013) $(3,532)
======= ======= ======= ======= ======= ====== ======= ======= =======
Basic net income
(loss) per
share(1)........ $ (.07) $ (.19) $ (.56) $ (.27) $ (.28) $ (.05) $ .10 $ (.41) $ (.25)
======= ======= ======= ======= ======= ====== ======= ======= =======
Diluted net
income (loss)
per share....... $ (.07) $ (.19) $ (.56) $ (.27) $ (.28) $ (.05) $ .05 $ (.41) $ (.25)
======= ======= ======= ======= ======= ====== ======= ======= =======
Shares used in
basic per share
computation(1).. 6,784 7,048 11,365 11,383 12,677 11,567 14,141 12,123 14,152
Shares used in
diluted per
share
computation(1).. 6,784 7,048 11,365 11,383 12,677 11,567 26,100 12,123 14,152
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------- JANUARY 31, OCTOBER 25,
1993 1994 1995 1996 1997 1998 1998
------ ------ ------ ------ ------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $1,605 $4,555 $3,872 $3,133 $ 6,551 $ 7,984 $12,461
Total assets............ 1,786 5,450 6,793 5,525 25,039 30,172 76,502
Capital lease
obligations, less
current portion........ 76 249 1,137 617 1,891 1,756 2,032
Total stockholders'
equity................. 1,659 4,629 4,013 1,037 6,897 8,610 18,294
</TABLE>
- --------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in per share computations.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's financial statements and notes thereto and the other financial
information included elsewhere in this Prospectus. Except for the historical
information contained herein, the discussions in this Prospectus contain
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not
limited to, those discussed below and in the section entitled "Risk Factors,"
as well as those discussed elsewhere in this Prospectus. The Company's fiscal
years ended on December 31 from 1993 to 1997. Effective January 31, 1998, the
Company changed its fiscal year-end financial reporting period to a 52- or 53-
week year ending on the last Sunday in January. The Company elected not to
restate its previous reporting periods ending December 31. As a result, the
first and fourth quarters of fiscal 1999 are 12- and 14-week periods,
respectively, with the remaining quarters being 13-week periods.
OVERVIEW
NVIDIA designs, develops and markets 3D graphics processors that provide
high performance interactive 3D graphics to the mainstream PC market. The
Company incurred losses in each year from inception through the first three
quarters of 1997. The Company incurred a loss in the quarters ended April 26,
1998 and July 26, 1998 and realized profits in the quarters ended December 31,
1997 and October 25, 1998. As of October 25, 1998, the Company had an
accumulated deficit of approximately $17.1 million. Since its inception in
April 1993 through the end of 1994, NVIDIA was in the development stage and
was primarily engaged in product development and product testing. The Company
introduced its first product, the NV1, in May 1995. The NV1 was a multimedia
accelerator that provided 3D graphics, video and audio for interactive
multimedia, and was targeted primarily to the game console market. The NV1 was
developed in the absence of industry standards with the goal of establishing
the Company's proprietary NV technology as a 3D graphics standard. By the end
of 1996, the PC industry had broadly adopted Microsoft's Direct3D and SGI's
OpenGL 3D APIs. As a result, the Company experienced a significant reduction
in revenue from sales of the NV1 and stopped selling the NV1 in the first
quarter of 1996. The Company also ceased development of the NV2, a product
designed for a game console platform, and began developing the RIVA128
graphics processor. The Company began commercial shipment of its RIVA128,
RIVA128ZX and RIVA TNT graphics processors in August 1997, March 1998 and July
1998, respectively. These high performance graphics products are designed to
be compatible with Microsoft's Direct3D and are targeted at the mainstream PC
market.
All of the Company's revenue in 1995 and 1996 was derived from the sale and
license of the NV1, and substantially all of the Company's revenue in 1997 and
the nine months ended October 25, 1998 was derived from the sale and license
of the RIVA family of graphics processors. The Company expects that
substantially all of its revenue for the foreseeable future will be derived
from the sale and license of its 3D graphics processors in the mainstream PC
market. The Company recognizes product sales revenue upon shipment, net of
allowances and recognizes royalty revenue upon shipment of product to the
licensee's customers. Since the Company has no other product line, the
Company's business, financial condition and results of operations would be
materially adversely affected if for any reason its graphics processors do not
achieve widespread acceptance in the mainstream PC market. During the spring
of 1998, many PC makers experienced reduced demand for their products,
resulting in increased inventories. Such market conditions resulted in reduced
orders from the Company's customers and negatively affected the Company's
financial results for the quarter ended July 26, 1998.
A majority of the Company's sales have been to a limited number of customers
and its sales are highly concentrated. The Company sells its graphics
processors to add-in board manufacturers, primarily Creative, Diamond and STB,
which incorporate these processors in the boards they sell to PC OEMs, retail
outlets and systems integrators. The average selling prices ("ASPs") for the
Company's products, as well as its customers' products, vary by distribution
channel. Substantially all of the Company's sales are made on the basis of
purchase orders rather than long-term agreements. Diamond accounted for 86%
and 82% of the Company's total revenue in 1995 and 1996, respectively. Sales
to STB and Diamond accounted for 63% and 31%, respectively, of the
26
<PAGE>
Company's total revenue in 1997, and sales to STB, Diamond, and Creative
accounted for 40%, 28%, and 12%, respectively, of the Company's total revenue
in the nine months ended October 25, 1998. The number of potential customers
for the Company's products is limited, and the Company expects that sales to
Creative and Diamond will continue to account for a substantial portion of its
revenue for the foreseeable future. 3Dfx, a 3D graphics company and a
competitor of the Company, recently announced the execution of an acquisition
agreement with STB, an add-in board manufacturer and significant customer of
the Company. The Company expects that as a result of the pending acquisition,
sales to STB will be reduced significantly from prior levels and that STB may
no longer continue to be a significant customer of the Company. Accordingly,
there can be no assurance that 3Dfx's pending acquisition of STB will not have
a material adverse effect on the Company's business, financial condition or
results of operations. Currently, all of the Company's product sales and its
arrangements with its third-party manufacturers provide for pricing and
payment in U.S. dollars, and the Company has not engaged in any foreign
currency hedging activities, although it may do so in the future.
Certain of the Company's customers have experienced financial difficulties
in the past and may continue to experience financial difficulties. For
example, both Diamond and STB reported significant losses for their most
recent fiscal period and declines in revenues from the previous period.
Financial instability at Diamond, STB or any of the Company's other customers
could result in reduced sales to such customers or greater difficulty in
collecting accounts receivable from such customers, either of which could have
a material adverse effect on the Company's business, financial condition or
results of operations.
As markets for the Company's 3D graphics processors develop and competition
increases, the Company anticipates that product life cycles will remain short
and ASPs will continue to decline. In particular, ASPs and gross margins are
expected to decline as each product matures. The Company's add-in board
manufacturers and major OEM customers typically introduce new system
configurations as often as twice per year, typically based on spring and fall
design cycles. Accordingly, the Company's existing products must have
competitive performance levels in order to be included in new system
configurations, or the Company must timely introduce new products with such
performance characteristics at costs and in sufficient volumes to maintain
overall average selling prices and gross margins. Failure to achieve necessary
costs and volume shipments with respect to future products or product
enhancements could result in rapidly declining ASPs, reduced margins, reduced
demand for products or loss of market share, any of which could have a
material adverse effect on the Company's business, financial condition or
results of operations.
Demand for the Company's products has been and will continue to be
significantly affected by actual and anticipated changes in the price and
supply of DRAM products or other components used with PC graphics processors.
Large supplies of SDRAMs in the spring of 1998 resulted in significant price
declines for such components and lowered the total system cost to customers of
products that used such SDRAMs, as compared to SGRAMs. Such unfavorable
component price competition negatively impacted sales of the Company's
RIVA128ZX graphics processor during the quarter ended July 28, 1998, as such
product operated only using SGRAMs at that time. There can be no assurance
that future fluctuations in prices of components used by customers of 3D
graphics processors will not have a material adverse effect on the Company's
business, financial condition or results of operations. See "Risk Factors--
Dependence upon Acceptance of the Company's 3D Graphics Solution for the
Mainstream PC Market," "--Dependence on New Product Development; Need to
Manage Product Transitions" and "--Importance of Design Wins."
The Company in the past utilized ST and currently utilizes TSMC to produce
the Company's semiconductor wafers and utilizes independent contractors to
perform assembly, test and packaging. The Company depends on these suppliers
to allocate to the Company a portion of their manufacturing capacity
sufficient to meet the Company's needs, to produce products of acceptable
quality and at acceptable manufacturing yields, and to deliver those products
to the Company on a timely basis. There can be no assurance that these
manufacturers will be able to meet the Company's near-term or long-term
manufacturing requirements. As the Company's relationships with its
manufacturing partners develop, yields or product performance could be
adversely affected due to difficulties associated with adapting the Company's
technology and product design to the proprietary
27
<PAGE>
process technology and design rules of each manufacturer. A manufacturing
disruption experienced by these manufacturers would impact the production of
the Company's products, which would have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
as the complexity of its products and the accompanying manufacturing process
increases, there is an increasing risk that the Company will experience
problems with the performance of such new products and that there will be yield
problems or other delays in the development or introduction of such products.
The Company experienced difficulty in achieving volume production at TSMC of
its RIVA128ZX graphics processor in the quarter ended July 26, 1998 and, to a
lesser degree, the RIVA TNT graphics processor in the quarter ended October 25,
1998. The lower yields resulting from such difficulties resulted in higher
expenses and lower revenues and a negative gross margin for the quarter ended
July 26, 1998. The Company obtains manufacturing services on a purchase order
basis and its manufacturers have no obligation to provide the Company with any
specified minimum quantities of product. In addition, the Company's third-party
manufacturers fabricate wafers, assemble, test and package products for other
companies, including certain competitors of the Company, and could choose to
prioritize capacity for other uses or reduce or eliminate deliveries to the
Company on short notice. See "Risk Factors--Dependence on Third-Party
Manufacturers; Absence of Manufacturing Capacity; Manufacturing Risks" and "--
Manufacturing Yields."
Substantially all of the Company's sales are made on the basis of purchase
orders rather than long-term agreements. As a result, the Company may commit
resources to the production of products without having received advance
purchase commitments from customers. Any inability to sell products to which
the Company has devoted significant resources could have a material adverse
effect on the business, financial condition or results of operations of the
Company. In addition, cancellation or deferral of product orders could result
in the Company holding excess inventory, which could have a material adverse
effect on the Company's profit margins and restrict its ability to fund its
operations. The Company recognizes revenue upon shipment of products to the
customer. Refusal by customers to accept shipped products, or delays or
difficulties in collecting accounts receivable could result in significant
charges against income, which could have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company has in the past entered into contractual agreements with third
parties to provide design, development and support services on a best efforts
basis. All amounts funded to the Company under these agreements were non-
refundable once paid and recorded primarily as a reduction to research and
development expenses. The Company developed the NV2 under contract with a third
party and recorded a credit to research and development of $2.0 million in 1995
and $3.0 million in 1996. Also, as part of a strategic collaboration agreement
with ST, the Company received contract funding in support of research and
development and marketing efforts for the RIVA128 and RIVA128ZX graphics
processors. Accordingly, the Company recorded $2.0 million in 1996 and
approximately $2.3 million in 1997 as a reduction primarily to research and
development, and, to a lesser extent to sales, general and administrative
expenses. The Company is obligated to provide continued development and support
to ST through the end of calendar 1998. As a result, the Company recorded $1.9
million for continued development and support in the nine months ended October
25, 1998 and expects to record $417,000 in the quarter ending January 31, 1999.
The Company does not currently have any plans to enter into contractual
development arrangements and does not expect contract funding in the future.
RESULTS OF OPERATIONS
The Company generated revenue from sales of its first 3D graphics processor
product in the third quarter of 1997, when the Company began commercial
shipment of the RIVA128 graphics processor. The Company began commercial
shipment of its RIVA128ZX graphics processor in March 1998, and began
commercial shipment of its RIVA TNT graphics processor in July 1998. Prior to
the introduction and sale of the RIVA128 graphics processor, the Company's
revenue was derived from the sale of products that were targeted at the game
console market. These products were discontinued in 1996 due to their
proprietary standards and market changes. Moreover, expenses prior to the third
quarter of 1997 related primarily to product development and product testing.
28
<PAGE>
NINE MONTHS ENDED SEPTEMBER 28, 1997 AND OCTOBER 25, 1998
REVENUE
Product Revenue. Product revenue increased from $5.2 million in the nine
months ended September 30, 1997 to $86.8 million in the nine months ended
October 25, 1998, due to sales of the RIVA 128, RIVA128ZX and RIVA TNT
graphics processors, which the Company began shipping commercially in August
1997, March 1998 and July 1998, respectively. Although the Company achieved
substantial growth in product revenue from the nine months ended September 30,
1997 to the nine months ended October 25, 1998, the Company does not expect to
sustain this rate of growth in future periods. In addition, the Company
expects that the ASPs of its of its products will decline over the lives of
such products, and there can be no assurance that declines in ASPs of 3D
graphics processors will not accelerate as the market develops and competition
increases. See "Risk Factors--Erosion of Average Selling Prices."
Royalty Revenue. ST has a license from the Company to sell the NV1
multimedia accelerator and the RIVA128 and RIVA128ZX graphics processors.
Royalty revenue from ST's sales of the RIVA128 graphics processor increased
from $312,000 in the nine months ended September 30, 1997 to $5.9 million in
the nine months ended October 25, 1998, as a result of increased sales of the
RIVA128 graphics processor and a derivative of the RIVA128ZX graphics
processor by ST. Royalty revenue from sales of the RIVA128 graphics processor
by ST represented approximately 6% of the Company's total revenue in the nine
months ended September 30, 1997 and royalty revenue from sales of the RIVA128
graphics processor and a derivative of the RIVA128ZX graphics processor
represented 6% of the Company's total revenue in the nine months ended October
25, 1998. The Company expects royalty revenue from ST to decrease as a
percentage of total revenue in the quarter ending January 31, 1999 and beyond.
GROSS PROFIT
Gross profit consists of total revenue net of allowances for product
returns, less cost of revenue. Cost of revenue consists primarily of the costs
of semiconductors purchased from the Company's contract manufacturers
(including assembly, test and packaging), manufacturing support costs (labor
and overhead associated with such purchases), inventory provisions and
shipping costs. The Company had a gross profit of $631,000 in the nine months
ended September 30, 1997 compared to a gross profit of $25.3 million in the
nine months ended October 25, 1998. Excluding royalty revenue, gross margin on
product revenue improved from 6% in the nine months ended September 30, 1997
to 22% in the nine months ended October 25, 1998 due to sales of the higher
margin RIVA TNT graphics processor and lower costs of the RIVA128 graphics
processor in the nine months ended October 25, 1998. Although the Company
achieved substantial growth in gross profit and gross margin from the 1997
period to the nine months ended October 25, 1998, the Company does not expect
to sustain these rates of growth in future periods.
OPERATING EXPENSES
Research and development. Research and development expenses consist of
salaries and benefits, cost of development tools and software, and consultant
costs, net of contract funding and support payments from ST. Research and
development expenses before adjustments for contract funding and support
payments increased from $5.0 million in the nine months ended September 30,
1997 to $18.6 million in the nine months ended October 25, 1998, primarily due
to additional personnel and related costs, such as depreciation charges
incurred on capital expenditures and software license and maintenance fees.
The Company anticipates that it will continue to devote substantial resources
to research and development and that these expenses will exceed $7.0 million,
net of support payments from ST, in the quarter of ending January 31, 1999.
The Company developed the NV2 under contract with a third party and recorded
a credit to research and development of $2.0 million in 1995 and $3.0 million
in 1996. Also, as part of a strategic collaboration agreement with ST, the
Company received contract funding in support of research and development and
marketing efforts for the RIVA128 and RIVA128ZX graphics processors.
Accordingly, the Company recorded $2.0 million in 1996 and approximately $2.3
million in 1997 as a reduction primarily to research and development, and, to
a lesser extent to sales, general and administrative expenses. The Company is
obligated to
29
<PAGE>
provide continued development and support to ST through the end of calendar
1998. As a result, the Company recorded $1.9 million for continued development
and support in the nine months ended October 25, 1998 as compared to $1.5
million in the nine months ended September 30, 1997, and expects to record
$417,000 in the quarter ending January 31, 1999. The Company does not
currently have any plans to enter into contractual development arrangements
and does not expect contract funding in the future.
Sales, General and Administrative. Sales, general and administrative
expenses consist primarily of salaries, commissions and bonuses earned by
sales, marketing and administrative personnel, promotional and advertising
expenses, travel and entertainment expenses and legal expenses, net of
contract funding received from ST. Sales, general and administrative expenses
increased from $2.0 million in the nine months ended September 30, 1997 to
$12.5 million in the nine months ended October 25, 1998, primarily due to
increased promotional expenses, additional personnel and commissions and
bonuses on sales of the RIVA128 and RIVA TNT graphics processors. The Company
expects that sales and marketing expenses will continue to increase in
absolute dollars as the Company expands its sales and marketing efforts and
increases promotional activities, and that general and administrative expenses
will increase in connection with expenses associated with being a public
company and expenses related to the SGI, S3 and 3Dfx patent lawsuits, until
such lawsuits are resolved.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest income primarily consists of interest earned on the Company's cash
and cash equivalents. Net interest income for the nine months ended October
25, 1998 was $60,000. An increase in interest income due to higher average
cash balances was partially offset by an increase in lease interest expense.
Interest expense primarily consists of interest incurred as a result of
capital lease obligations. Net interest expense for the nine months ended
September 28, 1997 was $102,000.
PROVISION FOR INCOME TAXES
The Company recorded no provision for federal or state income taxes through
1997 because the Company experienced net losses from inception through 1997.
Through October 25, 1998, the Company had recorded an aggregate benefit of
$308,000 for income taxes. The Company expects to record increasing provisions
for income taxes in fiscal 1999 and 2000, the amount of which will depend on
several factors, including the availability of net operating loss
carryforwards and research and development carryforwards. Future equity
offerings combined with sales of the Company's equity during the preceding
three years may constitute changes in ownership under the Internal Revenue
Code of 1986, and could limit the use of the Company's net operating loss
carryforwards existing as of the date of the ownership change. Realization of
the deferred tax assets also will depend on future taxable income. See Note 5
of Notes to Financial Statements.
FISCAL YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
REVENUE
Product Revenue. Product revenue was $1.1 million, $3.7 million and $27.3
million in 1995, 1996 and 1997, respectively. Prior to 1997, product revenue
was derived from sales of the Company's NV1 processor. The substantial
increase in product revenue from 1996 to 1997 was due to sales of the RIVA128
graphics processor, which the Company introduced in August 1997.
Royalty Revenue. Royalty revenue was $79,000, $202,000 and $1.8 million in
1995, 1996 and 1997, respectively. Royalty revenue increased in 1997 as a
result of the Company's introduction of the RIVA128 graphics processor in
August 1997 and subsequent sales of the RIVA128 graphics processor by ST.
GROSS PROFIT (LOSS)
The gross profit of $367,000 in 1995 was attributable to fixed manufacturing
support costs in a period of low product sales. Increased sales and slightly
lower fixed manufacturing costs contributed to a gross profit of $874,000 in
1996. The introduction of the RIVA128 graphics processor in August 1997 and
subsequent sales
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contributed to a gross profit of $7.8 million in 1997. Excluding royalty
revenue, gross margin on product revenue was (40)%, 18% and 22% in 1995, 1996
and 1997, respectively. The increase in gross margin on product revenue in
1997 was primarily due to sales of the RIVA128 graphics processor.
OPERATING EXPENSES
Research and Development. Research and development expenses before
adjustments for contract funding were $4.4 million, $5.8 million and $8.4
million in 1995, 1996 and 1997, respectively. Research and development
expenses increased each year primarily due to additional personnel and related
costs.
Sales, General and Administrative. Sales, general and administrative
expenses decreased from $3.7 million in 1995 to $2.6 million in 1996 as the
Company curtailed promotional activities associated with the NV1. Sales,
general and administrative expenses increased to $4.2 million in 1997
primarily due to incremental promotional expenses, additional personnel and
commissions and bonuses on sales of the RIVA128 graphics processor.
INTEREST AND OTHER INCOME (EXPENSE), NET
Net interest income was $93,000 in 1995, primarily due to interest earned on
net proceeds from the sale of preferred stock. Net interest expense was
$84,000 and $130,000 in 1996 and 1997, respectively, as a result of additional
equipment leased in support of the Company's development activities.
PROVISION FOR INCOME TAXES
No provision for federal or state income tax was recorded because the
Company experienced net losses from inception through 1997. As of December 31,
1997, the Company had deferred tax assets for federal tax purposes of
approximately $6.3 million, primarily consisting of net operating loss
carryforwards that can be used to offset taxable income in future years. The
deferred tax assets are fully offset by a valuation allowance.
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QUARTERLY RESULTS OF OPERATIONS
Selected quarterly financial data included in this table has been derived
from the internal quarterly financial reports for the periods shown. Effective
January 31, 1998, the Company changed its fiscal year-end financial reporting
period to a 52- or 53-week year ending on the last Sunday in January. The
Company elected not to restate its previous reporting periods ending December
31. Fiscal quarters for fiscal 1997 ended March 31, June 30, September 30 and
December 31; fiscal quarters for fiscal 1999 ended April 26, 1998, July 26,
1998 and October 25, 1998. This quarterly information is unaudited, but has
been prepared on the same basis as the audited annual financial statements,
and in the opinion of the Company's management includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information for the periods presented. The unaudited
quarterly information should be read in conjunction with the Company's audited
financial statements and the notes thereto included elsewhere herein. The
growth in revenue and improvement in results of operations experienced by the
Company in recent quarters are not necessarily indicative of future results.
In addition, in light of its significant growth in recent quarters, the
Company believes that period-to-period comparisons of its financial results
should not be relied upon as an indication of future performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------
MARCH 30, JUNE 29, SEPT. 28, DEC. 31, APRIL 26, JULY 26, OCT. 25,
1997 1997 1997 1997 1998 1998 1998
---------- -------- ---------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue:
Product............... $ 65 $ 6 $ 5,154 $22,055 $24,642 $ 10,963 $51,150
Royalty............... -- -- 312 1,479 3,621 1,171 1,153
------- ------- ------- ------- ------- -------- -------
Total revenue....... 65 6 5,466 23,534 28,263 12,134 52,303
------- ------- ------- ------- ------- -------- -------
Cost of revenue......... 208 150 4,548 16,338 20,873 12,961 33,566
Gross profit (loss). (143) (144) 918 7,196 7,390 (827) 18,737
Operating expenses:
Research and
development.......... 616 512 2,390 3,585 4,642 5,724 6,290
Sales, general and
administrative....... 385 569 1,070 2,159 3,885 3,962 4,697
------- ------- ------- ------- ------- -------- -------
Total operating
expenses........... 1,001 1,081 3,460 5,744 8,527 9,686 10,987
------- ------- ------- ------- ------- -------- -------
Operating income (loss). (1,144) (1,225) (2,542) 1,452 (1,137) (10,513) 7,750
Interest and other
income (expense), net.. (32) (40) (30) (28) 27 22 11
------- ------- ------- ------- ------- -------- -------
Income (loss) before tax
expense................ (1,176) (1,265) (2,572) 1,424 (1,110) (10,491) 7,761
Income tax expense
(benefit).............. -- -- -- -- (89) (839) 620
------- ------- ------- ------- ------- -------- -------
Net income (loss)... $(1,176) $(1,265) $(2,572) $ 1,424 $(1,021) $ (9,652) $ 7,141
======= ======= ======= ======= ======= ======== =======
Basic net income (loss)
per share.............. $ (.10) $ (.11) $ (.19) $ .10 $ (.07) $ (.68) $ .50
======= ======= ======= ======= ======= ======== =======
Diluted net income
(loss) per share....... $ (.10) $ (.11) $ (.19) $ .06 $ (.07) $ (.68) $ .26
======= ======= ======= ======= ======= ======== =======
Shares used in basic per
share computation...... 11,578 11,662 13,328 14,074 14,141 14,148 14,165
Shares used in diluted
per share computation.. 11,578 11,662 13,328 24,942 14,141 14,148 27,774
</TABLE>
FACTORS AFFECTING OPERATING RESULTS
The Company's quarterly and annual results of operations will be affected by
a variety of factors that could materially adversely affect revenue, gross
profit and results of operations. Factors that have affected the Company's
results of operations in the past, and are likely to affect the Company's
results of operations in the future, include, among others, demand and market
acceptance of the Company's products; the successful development of next-
generation products; unanticipated delays or problems in the introduction or
performance of next-generation products; market acceptance of the products of
the Company's customers; new product announcements or product introductions by
the Company's competitors; the Company's ability to introduce new products in
accordance with OEM design requirements and design cycles; changes in the
timing of product orders due to unexpected delays in the introduction of
products of the Company's customers or due to the life cycles of such
customers' products ending earlier than anticipated; fluctuations in the
availability of manufacturing capacity or manufacturing yields; competitive
pressures resulting in lower than expected ASPs; the volume of orders that are
received and that can be fulfilled in a quarter; the rescheduling or
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cancellation of customer orders; the unanticipated termination of a strategic
relationship; seasonal fluctuations associated with the tendency of PC sales
to decrease in the second quarter and increase in the second half of each
calendar year; and the level of expenditures for research and development of
sales, general and administrative functions of the Company.
The Company in the past utilized ST and currently utilizes TSMC to produce
the Company's semiconductor wafers and utilizes independent contractors to
perform assembly, test and packaging. The Company depends on these suppliers
to allocate to the Company a portion of their manufacturing capacity
sufficient to meet the Company's needs, to produce products of acceptable
quality and at acceptable manufacturing yields, and to deliver those products
to the Company on a timely basis. There can be no assurance that these
manufacturers will be able to meet the Company's near-term or long-term
manufacturing requirements. During 1998, the Company experienced difficulties
in achieving volume production at TSMC of the Company's RIVA128ZX and RIVA TNT
graphics processors. As the Company's relationships with its manufacturing
partners develop, yields or product performance could be adversely affected
due to difficulties associated with adapting the Company's technology and
product design to the proprietary process technology and design rules of each
manufacturer. A manufacturing disruption experienced by these manufacturers
would impact the production of the Company's products, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company obtains manufacturing services on a
purchase order basis and these manufacturers have no obligation to provide the
Company with any specified minimum quantities of product. These manufacturers
fabricate wafers, assemble, test and package products for other companies,
including certain competitors of the Company, and could choose to prioritize
capacity for other users or reduce or eliminate deliveries to the Company on
short notice. While these issues were resolved, there can be no assurance that
the Company will not experience difficulties related to the production of
current or future products or that other factors will not delay the
introduction or volume sale of new products developed by the Company.
The Company believes that quarterly and annual results of operations also
could be affected in the future by other factors, including changes in the
relative volume of sales of the Company's products; seasonality in the PC
market; the ability of the Company to reduce the process geometry of its
products; supply constraints for the other components incorporated into its
customers' products; the loss of a key customer; a reduction in the amount of
royalties received from ST; changes in the pricing of DRAMs or other
components; legal and other costs related to defending intellectual property
litigation; costs associated with protecting the Company's intellectual
property; inventory write-downs and foreign exchange rate fluctuations. Any
one or more of these factors could result in the Company failing to achieve
its expectations as to future revenue or net income. For example, in the
quarter ended July 26, 1998, the Company experienced substantial declines in
gross margin from the previous quarter due to increased competition from new
products introduced by both the Company and its competitors for the 1998
design cycles. Additionally, the Company experienced difficulties with volume
production of the RIVA128ZX graphics processor. The lower yields resulting
from such difficulties resulted in higher expenses and lower revenues, and
combined with declining sales of the RIVA128 graphics processor resulted in a
negative gross margin for the quarter ended July 26, 1998. The production
issues related to the RIVA128ZX and RIVA TNT graphics processor were resolved
in the quarter ended October 25, 1998 and the Company experienced higher
sales, lower manufacturing costs and higher gross profits and margins in such
quarter as compared to the prior quarter. Gross profit or gross margin could
be affected in the future by various factors, including changes in the volume
of the Company's products, competitive pressures resulting in lower than
expected ASPs, reduction in the amount of royalty revenue received from ST and
inventory write-downs.
Because most operating expenses are relatively fixed in the short term, the
Company may be unable to adjust spending sufficiently in a timely manner to
compensate for any unexpected sales shortfall, which could materially
adversely affect quarterly results of operations. The Company will be required
to reduce prices in response to competition or to pursue new market
opportunities. If new competitors, technological advances by existing
competitors or other competitive factors require the Company to invest
significantly greater resources than anticipated in research and development
or sales and marketing efforts, the Company's business, financial condition
and results of operations could be materially adversely affected. Accordingly,
the Company believes that period-to-period comparisons of its results of
operations should not be relied upon as an indication of future
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<PAGE>
performance. In addition, the results of any quarterly period are not
indicative of results to be expected for a full fiscal year. As a result of
fluctuating operating results or other factors discussed above, in certain
future quarters the Company's results of operations may be below the
expectations of public market analysts or investors. In such event, the market
price of the Company's Common Stock would be materially adversely affected.
LEGAL PROCEEDINGS
SGI filed a patent infringement lawsuit against the Company in April 1998,
S3 filed a patent infringement lawsuit against the Company in May 1998 and
3Dfx filed a patent infringement lawsuit against the Company in September
1998. In the event of an adverse result in the SGI suit, the S3 suit or the
3Dfx suit, the Company could be required to do one or more of the following:
pay substantial damages (including treble damages); preliminarily and/or
permanently cease the manufacture, use and sale of any infringing products;
expend significant resources to develop non-infringing technology; or obtain a
license from SGI, S3 or 3Dfx for any infringing technology. Any suit could
result in limitations on the Company's ability to market its products, delays
and costs associated with redesigning its products or payments of license fees
or other payments to SGI, S3 or 3Dfx, any of which would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company believes that with respect to each of the patent
claims at issue in such lawsuits, either such claims are invalid or the
Company's products do not infringe such claims. This belief is based on the
Company's investigation to date and, with respect to the patent claims at
issue in the suits by SGI and S3, upon an opinion from patent counsel to the
Company. The Company expects to receive an opinion from patent counsel that
its products do not infringe the patent claims at issue in the 3Dfx lawsuit.
The Company has and intends to continue to defend itself vigorously with
respect to all three lawsuits. See "Business--Legal Proceedings."
STOCK-BASED COMPENSATION
With respect to certain stock options granted to employees, the Company
recorded deferred compensation of $4.3 million and $361,000 in 1997 and the
one month ended January 31, 1998, respectively. The Company amortized
approximately $961,000, $361,000 and $2.2 million of the deferred compensation
in 1997, the one month ended January 31, 1998 and the nine months ended
October 25, 1998, respectively, and will amortize the remainder over the four-
year vesting periods of the options. The Company anticipates that it will
amortize approximately $350,000 in the three months ending January 31, 1999
and an additional $650,000 in fiscal 2000. See Note 3 of Notes to Financial
Statements.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year (the "Year 2000 Issue").
Computer programs that have such date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
The Company is heavily dependent upon the proper functioning of its own
computer or data-dependent systems. This includes, but is not limited to, its
information systems in business, finance, operations and service. Any failure
or malfunctioning on the part of these or other systems could adversely affect
the Company in ways that are not currently known, discernible, quantifiable or
otherwise anticipated by the Company.
The Company's graphics processors and related software do not depend on any
date-sensitive functions in order to perform in accordance with their
respective designs and their functions will not be negatively affected by the
Year 2000 Issue. The Company's products are ultimately used with a number of
different hardware and software products and to the extent such third-party
products are not Year 2000 compliant, the interoperability of the Company's
products may be adversely affected. Given the number of third-party components
and the Company's limited resources, the Company does not expect to review
such third-party products.
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<PAGE>
The Company has conducted and completed an initial audit of its critical
internal financial, informational and operational systems and its electronic
design tools to identify and evaluate those areas of the Company that may be
affected by the Year 2000 Issue. The Company is currently devising a plan to
implement and test any necessary modifications to these key areas to ensure
that they are Year 2000 compliant. The Company anticipates that this plan will
include (i) independent validation of the Company's Year 2000 assessment
procedures, (ii) initiation of formal communications with all of its
significant suppliers, large customers and tools vendors to determine the
extent to which the Company is vulnerable to those third parties' failure to
remedy their own Year 2000 Issues and (iii) the development of contingency
plans to address situations that may result if the Company is unable to
achieve Year 2000 readiness of its critical operations. The Company
anticipates that any required remediation programs will be completed by the
end of calendar 1999.
To date, the Company has not incurred incremental material costs associated
with its efforts to become Year 2000 compliant, as the majority of the costs
have occurred as a result of normal upgrade procedures. Furthermore, the
Company believes that future costs associated with its Year 2000 compliance
efforts will not be material.
In addition to the risks associated with the Company's own systems, the
Company has relationships with, and is to varying degrees dependent upon, a
large number of third parties that provide information, goods and services to
the Company and manufacture the Company's graphics processors. The Company's
business and results of operations could experience material adverse effects
if its key suppliers were to experience Year 2000 Issues that caused them to
delay manufacturing or shipment of finished product to the Company. In
addition, the Company's results of operations could be materially adversely
affected if any of the Company's key customers encounter Year 2000 Issues that
cause them to delay or cancel substantial purchase orders or delivery of the
Company's product. The Company has begun to initiate formal communications to
ascertain the Year 2000 compliance of its key suppliers and determine the
extent to which the Company may be vulnerable to those third parties' failure
to remedy their own Year 2000 Issues.
While the Company plans to complete modifications or upgrades of its
business-critical systems prior to the Year 2000, there can be no assurance
that the Company will be able to develop a plan to address the Year 2000 Issue
in a timely manner or to upgrade any or all of its major systems in accordance
with such plan. If such modifications or upgrades or modifications by key
suppliers or customers are not completed in a timely manner or are not
successful, the Company may be unable to conduct its business, which would
have a material adverse effect on the operations and financial position of the
Company. In addition, there can be no assurance that any such upgrades will
effectively address the Year 2000 Issue. Furthermore, there can be no
guarantee that the systems of other companies on which the Company relies for
the manufacture of its products will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
The Company cannot predict the extent of any such impact.
There can be no assurance that the Company or any third party will not
encounter any unforeseen problems with respect to any of the Company's
systems, which unforeseen problems could have a material adverse effect on the
operations and financial position of the Company. The Company is currently
evaluating possible action, including accumulating excess inventory of its
finished products, to be taken in the event that the assessment of the Year
2000 Issue is not successfully completed on a timely basis, but has not yet
established a formal contingency plan.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of convertible securities totaling $30.7 million and, to a
lesser extent, equipment lease financing and proceeds received from the
exercise of employee stock options. As of October 25, 1998, the Company had
$12.5 million in cash and cash equivalents and $5.0 million in outstanding
bank indebtedness. The Company has historically held its cash balances in cash
equivalents such as money market funds or as cash. The Company places its
money market funds with high credit quality financial institutions and limits
the amount of exposure with any one financial institution.
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<PAGE>
The Company has a $5.0 million credit facility. Borrowings under the line of
credit carry interest at prime rate plus 1% and are due in March 1999. As of
October 25, 1998, the Company had borrowed $5.0 million against the line of
credit.
Net cash used in operating activities was $6.1 million in 1995, $279,000 in
1996 and $1.2 million in 1997. The decrease from 1995 to 1996 was a result of a
smaller operating loss and higher deferred contract funding in 1996, and the
increase from 1996 to 1997 was a result of substantial increases in accounts
receivable in 1997, partially offset by an increase in accounts payable. Net
cash provided by operating activities was $5.9 million in the nine months ended
October 25, 1998, primarily consisting of changes in working capital. The
Company's accounts receivable are highly concentrated. Two customers accounted
for substantially all of the accounts receivable in 1997 and four customers
accounted for substantially all of the accounts receivable in the nine months
ended October 25, 1998. Although the Company has not experienced any bad debt
write-offs to date, there can be no assurance that the Company will not be
required to write off bad debt in the future, which could have a material
adverse effect on the Company's business, financial condition or results of
operations.
To date, the Company's investing activities have consisted primarily of
purchases of property and equipment. As of October 25, 1998, in addition to
commitments under operating and capital leases, the Company had manufacturing
commitments of $48.0 million. See Note 4 of Notes to Financial Statements. The
Company's capital expenditures, including capital leases, increased from $1.4
million in 1995 to $5.8 million in 1997, due to additional capital leases and
purchases of computer equipment, including workstations and servers to support
the Company's increased research and development activities. The Company
invested $6.5 million in capital expenditures in the nine months ended October
25, 1998, including capital leases primarily for computer equipment and
software, including workstations and servers, in support of the Company's
increased research and development activities. The Company expects its capital
expenditures to increase as the Company further expands its research and
development initiatives and as its employee base grows. The timing and amount
of future capital expenditures will depend primarily on the Company's future
growth. The Company expects to spend approximately $10.0 million for capital
expenditures in fiscal 2000, primarily for capital leases and the purchase of
computer and engineering workstations.
The Company believes that the net proceeds from this offering, together with
its existing cash balances, anticipated cash flows from operations and credit
line and capital lease financing, will be sufficient to meet the Company's
operating and capital requirements for at least the next 12 months, although
the Company could be required, or could elect, to raise additional funds during
such period. The Company's future liquidity and capital requirements will
depend upon numerous factors, including the costs and timing of expansion of
research and product development efforts and the success of these development
efforts, the costs and timing of expansion of sales and marketing activities,
the extent to which the Company's existing and new products gain market
acceptance, competing technological and market developments, the costs involved
in defending and enforcing patent claims and other intellectual property
rights, available borrowings under line of credit arrangements and other
factors. The Company expects that it may need to raise additional equity or
debt financing in the future. There can be no assurance that such additional
financing will be available at all, or that such financing, if available will
be obtainable on terms favorable to the Company and will not be dilutive to the
Company's then-current stockholders.
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BUSINESS
OVERVIEW
NVIDIA designs, develops and markets 3D graphics processors and related
software that provide high performance interactive 3D graphics to the
mainstream PC market. The Company's graphics processors incorporate a 128-bit
graphics architecture that is designed to deliver a highly immersive,
interactive 3D experience with realistic imagery and stunning effects. The
RIVA family of graphics processors, including the RIVA TNT, provides superior
processing power at competitive prices and is architected to take advantage of
mainstream industry standards such as Microsoft's Direct3D. The highly
integrated design of the RIVA TNT, RIVA128ZX and RIVA128 graphics processors
combines high performance 3D and 2D graphics on a single chip and provides a
simpler and lower cost graphics solution relative to competing solutions,
including multi-chip or multi-board 2D/3D graphics subsystems.
NVIDIA designed the RIVA TNT, RIVA128ZX and RIVA128 graphics processors to
enable PC OEMs and add-in board manufacturers to build award-winning products
by delivering state-of-the-art interactive 3D graphics capability to end users
while maintaining affordable prices. The Company believes that by developing
3D graphics solutions that provide superior performance and address the key
requirements of the mainstream PC market, it will accelerate the adoption of
3D graphics throughout this market. The benefits and performance of the RIVA
family of 3D graphics processors have received significant industry validation
and have enabled the Company's customers to win over 180 industry awards.
NVIDIA's products currently are designed into products offered by six of the
top ten PC OEMs, such as Compaq, Dell, Gateway, IBM, Micron and Packard Bell
NEC as well as leading motherboard manufacturers such as Intel and leading
add-in board manufacturers such as ASUSTeK, Canopus, Creative, Diamond, ELSA
and Leadtek.
INDUSTRY BACKGROUND
Interactive 3D graphics technology is emerging as one of the most
significant new computing developments since the introduction of the graphical
user interface. The visually engaging and interactive nature of 3D graphics
responds to consumers' demands for a convincing simulation of reality beyond
what is possible with traditional 2D graphics. The fundamental interactive
capability of 3D graphics is expected to make it a natural and compelling
medium for existing and emerging applications for entertainment, Internet,
business and education.
Interactive 3D graphics is required across various computing and
entertainment platforms, such as workstations, specialized arcade systems and
home gaming consoles. However, the mainstream PC market has only recently
begun to transition from traditional 2D graphics to high-quality, interactive
3D graphics. Continuing advancements in semiconductor manufacturing have made
available more powerful and affordable microprocessors and 3D graphics
processors, both of which are essential to deliver interactive 3D graphics to
the mainstream PC market. Additionally, the industry has broadly adopted
Microsoft's 3D API, Direct3D, which serves as a common and standard language
between software applications and 3D graphics processors. This has spurred the
development of numerous compelling 3D titles, which has, in turn, spurred
strong consumer demand.
The Company believes that a PC's interactive 3D graphics capability
represents one of the primary means by which users differentiate among various
systems. PC users today can easily differentiate the quality of graphics and
prefer personal computers that provide a superior visual experience. These
factors have dramatically increased demand for 3D graphics processors. Mercury
Research estimates that 3D graphics will be standard in every PC unit shipped
by 2001. Mercury Research also estimates 4.9 million 3D graphics processors
were sold worldwide in 1997 and 138 million will be sold worldwide in 2001.
The technology required to create interactive and visually engaging 3D
graphics is algorithmically complex and computationally intensive. To deliver
high-quality interactive 3D graphics, advanced 3D graphics processors require
millions of transistors to process billions of arithmetic operations per
second. Current 3D graphics processors are over ten times more complex than 2D
accelerators and comparable to the complexity of Intel's Pentium
microprocessors. Yet despite recent advances, PC 3D graphics available today
cannot deliver in real time
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the quality of graphics seen in the film "Toy Story." Such 3D graphics
required over 100 powerful workstations and over 800,000 computer hours to
render the film's 114,000 frames, with each frame requiring an average of
seven hours to render. For mainstream PCs to provide this level of 3D graphics
capability, the performance of 3D graphics processors will need to be improved
by several more orders of magnitude. To approach "real world" graphics
performance even beyond that seen in "Toy Story," graphics processors would
require significant further improvement in performance.
The demanding requirements of high-performance 3D graphics present
significant new challenges for semiconductor graphics companies in the
mainstream PC market. Certain suppliers offer 3D graphics solutions that only
address specific niches of the market, such as the gaming or CAD/CAM markets.
These solutions typically have been relatively expensive, in some cases
involving multiple chips on an add-in card, with separate chips for 2D
graphics and 3D graphics processing. Furthermore, these niche 3D solutions
often require content providers to develop to proprietary APIs other than
Microsoft's Direct3D in order to achieve the necessary performance. The higher
product costs and API limitations have made it difficult for such targeted 3D
graphics solutions to achieve widespread acceptance in the mainstream PC
market. On the other end of the spectrum, traditional 2D graphics suppliers
have attempted to leverage their installed base by adding 3D graphics
functionality to their 2D graphics architectures. However, 3D graphics
algorithms and architectures are significantly more complex than those of 2D
graphics, and the traditional 2D graphics suppliers face many challenges to
develop and provide cost-effective high-performance 3D graphics.
The Company believes that a substantial market opportunity exists for
providers of high performance 3D graphics products for the mainstream PC
market, particularly as high-performance 3D graphics have become an
increasingly important requirement and point of differentiation for PC OEMs.
Consumer PC users demand a compelling visual experience and compatibility with
existing and next-generation 3D graphics applications at an affordable price.
Application developers require high-performance, standards-based 3D
architectures with broad market penetration. Since graphics is a key point of
differentiation, PC OEMs continually seek to incorporate leading-edge cost-
effective 3D graphics solutions to build award-winning products. The Company
believes that providers of interactive 3D graphics solutions will compete
based on their ability to leverage their technology expertise to
simultaneously meet the needs of end users, application developers and OEMs.
THE NVIDIA SOLUTION
NVIDIA has developed a family of 3D graphics processors that provides high-
performance interactive 3D graphics to the mainstream PC market. The Company's
products allow users to enjoy a highly immersive, interactive 3D experience
with compelling visual quality, realistic motion and complex object and scene
interaction at real-time frame rates. By providing this level of performance
at an affordable price to OEMs and end users, the Company believes that it
will accelerate the adoption of interactive 3D graphics throughout the
mainstream PC market. The Company's products are used by leading PC OEMs, such
as Compaq, Dell, Gateway, IBM, Micron and Packard Bell NEC, as well as leading
motherboard manufacturers such as Intel and leading add-in board
manufacturers, such as ASUSTeK, Canopus, Creative, Diamond, ELSA and Leadtek.
The RIVA TNT, RIVA128ZX and RIVA128 graphics processors have received
significant industry validation and has enabled the Company's customers to
receive over 180 industry awards.
The key features and benefits of the Company's solution are as follows:
High Performance, 128-Bit Architecture. The Company's 128-bit product
architecture and leading technology enable it to provide products with state-
of-the-art interactive 3D graphics performance and superior processing power.
The RIVA TNT graphics processor's architecture combined with a proprietary
texture and vertex caches and parallel texel engines allow it to process up to
six million polygons per second and maintain a fill rate of 190 million
texture mapped pixels per second. This performance is driven by the processing
power of dual 9.5 GFLOPS (billions of floating point operations per second)
floating point polygon setup engine and a 38 BOPS (billions of operations per
second) integer pixel processing engine. With a 128-bit graphics
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architecture, the RIVA family of graphics processors deliver 3D graphics with
great detail, smooth shading, high frame rates and overall stunning effects,
while maintaining volume pricing for multimedia and entertainment
applications.
The RIVA TNT graphics processor also includes an extensive set of reference
drivers that translate between the software API and hardware. The software
driver is designed to maximize performance of the graphics processor and to
maintain compatibility with each successive generation of the Company's
products. The software drivers have the flexibility to be continually enhanced
in order to further improve the performance of the processors. The Company
believes that the high performance of its graphics processors provides a
competitive advantage to the Company's OEM customers, enabling them to
differentiate their systems from those of other PC vendors.
Standards-Based. The RIVA family of graphics processors are architected to
take full advantage of industry standards such as Microsoft's Direct3D. The
standards-compliant design of the Company's graphics processors provides OEMs
maximum flexibility in the design and use of the systems. In particular, the
Company believes that its focus on the Microsoft Direct3D API positions it
well in the mainstream PC market as this standard proliferates and supports
more advanced 3D visuals. Microsoft's Direct3D API has gained broad developer
support, with numerous 3D titles currently using this API.
Integrated Design. The RIVA TNT, RIVA128ZX and RIVA128 graphics processors'
highly integrated single-chip design supports high-performance interactive 3D
graphics applications while simultaneously optimizing 2D graphics and
providing VGA compatibility and DVD playback. By integrating 2D graphics and
3D graphics on one chip, the Company believes that it has standardized the
platform for developers and provided a graphics solution that is simpler and
lower cost relative to competing solutions, including multi-chip or multi-
board 2D/3D graphics subsystems.
STRATEGY
The Company's objective is to be the leading supplier of high performance 3D
graphics processors for PCs. The Company's strategy to achieve this objective
includes the following key elements:
Build Award-Winning Products for the Mainstream PC Market. The Company's
strategy is to achieve market leadership in the high-volume mainstream PC
market by providing award-winning performance at competitive prices. By
developing 3D graphics solutions that provide superior performance and address
the key requirements of the mainstream PC market, NVIDIA believes that it will
accelerate the adoption of 3D graphics throughout the mainstream PC market. As
part of its strategy to address the broadest segment of the PC market, the
Company has closely aligned its product development with Microsoft's Direct3D
API, rather than creating and promoting a proprietary API. The Company
believes this alignment with Direct3D maximizes third-party software support.
Target Leading OEMs. The Company's strategy is to enable its leading OEM
customers to differentiate their products in a highly competitive marketplace
by using NVIDIA's high-performance 3D graphics processors. NVIDIA believes
that design wins with these industry leaders provide market validation of its
products, increase brand awareness and enhance the Company's ability to
penetrate additional leading customer accounts. In addition, the Company
believes that close relationships with OEMs will allow the Company to better
anticipate and address customer needs with its future generations of products.
NVIDIA's products currently are designed into products offered by six of the
top ten PC OEMs, such as Compaq, Dell, Gateway, IBM, Micron and Packard Bell
NEC--as well as leading motherboard manufacturers such as Intel and leading
add-in board manufacturers such as ASUSTeK, Canopus, Creative, Diamond, ELSA
and Leadtek.
Extend Technological Leadership in 3D Graphics. NVIDIA believes that its
products provide superior interactive 3D graphics to the mainstream PC market.
The Company is focused on leveraging its advanced engineering capabilities to
accelerate the quality and performance of 3D graphics in PCs. A fundamental
aspect of NVIDIA's strategy is to actively recruit the best 3D graphics
engineers in the industry, and NVIDIA believes that it has assembled an
exceptionally experienced and talented engineering team. The Company intends
to leverage this advantage to achieve new levels of graphics features and
performance, enabling customers to achieve award-winning performance in their
products.
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Increase Market Share. The Company believes that substantial market share
will be important to achieving success in the 3D graphics business. The
Company intends to achieve a leading share of the market by devoting
substantial resources towards establishing NVIDIA's brand and leading product
capabilities as the de facto graphics standard for end users, application
developers and OEMs.
NVIDIA ARCHITECTURE, PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
3D PROCESSING TECHNOLOGY BACKGROUND
3D graphics processors create two-dimensional images, which can be displayed
on computer monitors or other output devices, from computer specifications of
three-dimensional objects or "models." These two-dimensional images are
typically the perspective view of the objects from an eye-point that changes
with time, and as such are computationally very intensive. The 3D effect
arises from a variety of visual cues, such as perspective, occlusion, surface
shading, shadows, focus and motion. Convincing realism arises from precise
calculation of these and other effects, and these calculations require
dedicated processors, which provide far more power and bandwidth than
microprocessors can deliver.
The 3D graphics process is a series of specialized steps, often referred to
as the 3D graphics pipeline. Typically, the microprocessor chooses an eye-
point and decides which objects should be displayed. These are commonly
communicated to the graphics subsystem via a software interface, such as
Microsoft's Direct3D or SGI's OpenGL. The processing itself occurs in several
steps, as depicted and described below:
GEOMETRY POLYGON
MODEL -- PROCESSING -- SETUP -- RASTERIZATION -- DISPLAY
Model. The model typically is expressed as a set of polygons, such as
triangles, that form the basic shape of a three-dimensional object and
have attributes such as position and color at each vertex.
Geometry Processing. Geometry processing transforms the original
position and orientation of the polygons to their new position on the
screen. Based on their position and orientation, some aspects of their
surface color and lighting can be computed. The 3D visual cues of
perspective and motion are handled during this stage. These
calculations require very high floating-point computation power and are
performed by the host microprocessor.
Polygon Setup. Polygon setup calculates the slopes of the polygon
sides and various other derivatives that greatly accelerate the
rasterization process. Although early graphics devices performed these
calculations in the host microprocessor, today's 3D graphics processor
perform these calculations, permitting significantly higher
performance.
Rasterization. Rasterization computes the color and other information
for every pixel (dot on the screen) that a transformed polygon touches.
A number of complex algorithms compute the color uniquely for each
pixel, as well as perform the remaining visual cues, such as shading,
shadows, focus and occlusion. This is the most computationally
intensive step of the graphics pipeline and the processors are required
to perform up to 1,000 calculations per pixel, with this number
increasing rapidly.
Display. Display consists of sequentially reading out the color of
each pixel at a rate matched to the monitor. Unlike the other stages in
the 3D graphics pipeline, which are purely digital, the signals to the
monitor are analog, and the frequencies are far higher.
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The complexity of the different steps in the 3D graphics pipeline requires
billions of floating-point and integer operations in real time to deliver a
realistic and interactive experience. Image quality determines whether 3D
computer representation looks realistic, and 3D performance determines whether
a 3D system conveys a sense of fluid motion in real time. If the performance
is below a certain threshold, a 3D system can in fact reduce the productivity
or the enjoyment of the user, even if the image quality is high. The challenge
with high-quality 3D is to deliver the processing power required to perform
these computations without creating bottlenecks in the 3D graphics pipeline.
NVIDIA PRODUCTS
RIVA TNT Graphics Processor
The RIVA TNT graphics processor enables PC OEMs and add-in board
manufacturers to satisfy end-user performance requirements by providing visual
realism and real-time interactivity. The RIVA TNT graphics processor, the
Company's second-generation product, is highly integrated and delivers high
frame rate 3D graphics, as well as 2D graphics, VGA and video processing in a
single processor. The RIVA TNT graphics processor also includes a rich set of
reference drivers and tools that translate between software API and hardware.
These drivers provide the ability to connect to and process data from external
video devices. The software driver is designed to maximize performance of the
graphics processor and to maintain compatibility with each successive
generation of the Company's products. The software drivers have the
flexibility to be continually enhanced in order to further improve the
performance of the processors.
The RIVA TNT graphics processor incorporates 7 million transistors and can
perform in excess of 38 BOPS. This processor includes several new features
designed to maximize user experience in modern applications, including the
following key features:
Twin Texel Pipeline. Through the use of parallel texel engines, the RIVA
TNT graphics processor can process two texels per clock cycle. This results
in richer visuals at high frame rate, which provides a heightened user
experience. For example, multiple textures can be applied to an object in
one cycle, whereas competing processors would require multiple cycles.
High Pixel Fill Rate. The RIVA TNT graphics processor can fill up to 190
million pixels per second, which is significantly higher than most
competing graphics processors. The high pixel fill rate provides a user
with rich scenes at smooth frame rates.
32-Bit (true) Color. The RIVA TNT graphics processor supports 8 bits of
precision for the red, green, blue and alpha channels associated with pixel
color. By supporting more bits of precision, the RIVA TNT graphics
processor provides brilliant colors and more accurate representations of
models and scenes.
24-Bit Z Buffer. Used in calculating relative position along the "Z"
axis, a 24-bit Z buffer provides more accurate object placement in scene
representation. This eliminates "flashing" often associated with polygons
that have the same Z value.
8-Bit Stencil. Special effects like cutouts, mirrors or water puddles are
possible with high frame rates through the use of an 8-bit stencil buffer.
250MHz Integrated RAMDAC. The 250MHz integrated RAMDAC allows for high
resolution and high refresh rate output to computer monitors.
16MB Frame Buffer Support. A wide variety of memory types can be
configured in up to 16MB frame buffer memory. This frame buffer is 128 bits
wide and is required for high-speed, high-resolution support of
applications with large textures.
The RIVA TNT graphics processor is produced using a .35 micron technology
and began commercial shipment in July 1998 and began shipping in volume in
August 1998. It has been adopted by several top OEMs and received PC
Magazine's 1998 Editors Choice award for graphics processors.
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The primary functional units of the RIVA TNT graphics processor are the 3D
geometry processing unit, the 2D engine, the 3D pixel processor, the texture
cache and the Palette-DAC and video processor. The following illustrates the
primary components of the RIVA TNT graphics processor:
[DIAGRAM OF TNT PROCESSOR]
[Description of illustration: Depiction of RIVA128 3D graphics processor, with
the following functional areas labelled: 3D Geometry Processing Unit, Texture
Cache, Video Port, 2D Engine, 3D Pixel Processor, Palette-DAC and Video
Processor, VGA, Internal Bus, Memory Controller, PCI/AGP Interface.]
The RIVA TNT 3D Graphics Processor
Twin Texel 3D Geometry Processing Units. These engines perform the
polygon setup and lighting calculations and prepares data for pixel
processing. The 9.5 GFLOPS floating point engines process up to six
million polygons per second.
2D Engine. The 2D rendering engine provides high performance for 2D
applications. The 2D engine is necessary for applications such as those
used in a business environment where 2D objects are drawn to and moved
around on the computer monitor. Examples include Windows-based
applications such as Microsoft Word, Powerpoint or Excel. The presence
of high-performance 2D graphics is a critical function for 3D graphics
processors targeted for the mainstream PC market.
Twin Texel 3D Pixel Processors. The 32-bit twin texel 3D pixel
processors calculate pixel colors and other attributes to be rendered
to the computer screen. They include advanced rendering capabilities,
such as 32-bit RGB Gouraud shading, alpha blending, perspective correct
per pixel fog, perspective correct specular highlights, and support for
single-pass multitexturing.
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Texture Cache. The texture cache provides high performance, local
texture storage for the pixel processing engine.
Palette-DAC and Video Processor. The Palette-DAC pipeline accelerates
full-motion video playback, sustaining 30 frames per second while
retaining high quality color resolution, implementing true bilinear
filtering for scaled video, and compensating for filtering losses using
edge enhancement algorithms.
RIVA128ZX Graphics Processor
The RIVA128ZX graphics processor extends the functionality and performance
of the RIVA128 graphics processor and includes two additional design features,
AGP 2X and an 8MB (megabyte) frame buffer. The AGP 2X, Intel's newest graphics
bus, doubled the available bandwidth between the microprocessor and the
graphics engine. With AGP 2X support, the RIVA128ZX graphics processor is
designed to process more complex 3D computer representations more efficiently.
Doubling the size of the frame buffer to 8MB provides the RIVA128ZX graphics
processor with the ability to support higher resolution displays with more
colors, resulting in a richer real-time experience.
The RIVA128ZX graphics processor is produced using a .35 micron
manufacturing process and began commercial shipment in March 1998 and shipping
in volume in July 1998.
RIVA128 Graphics Processor
The RIVA128 graphics processor incorporates 3.5 million transistors and
operates on 100 MHz clock speed, enabling it to perform 20 BOPS. The RIVA128
graphics processor breaks through bottlenecks created by the computationally
intensive requirements of 3D graphics by providing superior processing power.
The RIVA128 graphics processor is produced using a .35 micron manufacturing
process. The Company began commercial shipment in August 1997.
NVIDIA PRODUCTS UNDER DEVELOPMENT
The Company has announced its intention to deliver a new generation of 3D
graphics processors in calendar 1999 that will be based on a .25 micron
manufacturing process.
SALES AND MARKETING
NVIDIA's sales strategy is a key part of its objective to become the leading
supplier of high performance 3D graphics processors for PCs. In order to meet
customer and end-user requirements and achieve design wins, the Company's
sales team works closely with PC OEMs, add-in board manufacturers and industry
trend setters to define product features, performance, price and timing of new
products. Members of the Company's sales team have a high level of technical
expertise and product and industry knowledge to support a competitive and
complex design win process. NVIDIA also employs a highly skilled team of
application engineers to assist PC OEMs and add-in board manufacturers in
designing, testing and qualifying system designs that incorporate NVIDIA
products. The Company believes that the depth and quality of this design
support are key to improving PC OEMs' and add-in board manufacturers' time-to-
market, maintaining a high level of customer satisfaction among PC OEMs and
add-in board manufacturers and fostering relationships that encourage its
customers to use the next-generation of NVIDIA's products.
In the 3D graphics market, the sales process involves influencing leading PC
OEMs' and add-in board manufacturers' graphics processor purchasing decisions,
achieving key design wins and supporting the product design into high volume
production. These design wins in turn influence the retail and system
integrator channel
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that is serviced by add-in board manufacturers. The Company's distribution
strategy is to work with a relatively small number of leading add-in board
manufacturers that have relationships with a broad range of major PC OEMs
and/or strong brand name recognition in the retail channel. Currently, the
Company sells the RIVA family of graphics processors directly to add-in board
manufacturers, such as ASUSTeK, Canopus, Creative, Diamond, ELSA, Leadtek and
STB, which in turn sell boards with the RIVA128 graphics processor to leading
OEMs, such as Compaq, Dell, Gateway, IBM, Micron and Packard Bell NEC, to
retail outlets, such as BestBuy and CompUSA, and to a large number of system
integrators. Sales to STB and Diamond accounted for 63% and 31%, respectively,
of the Company's total revenue in 1997, and sales to STB, Diamond and Creative
accounted for 40%, 28% and 12%, respectively, of the Company's total revenue
in the nine months ended October 25, 1998. 3Dfx, a 3D graphics company and a
competitor of the Company, recently announced the execution of an acquisition
agreement with STB, an add-in board manufacturer and significant customer of
the Company. The Company expects that as a result of the pending acquisition,
sales to STB will be reduced significantly from prior levels and that STB may
no longer continue to be a significant customer of the Company. Accordingly,
there can be no assurance that 3Dfx's pending acquisition of STB will not have
a material adverse effect on the Company's business, financial condition or
results of operations.
The Company also has a strategic collaboration agreement with ST (the "ST
Agreement"), pursuant to which ST is entitled to manufacture the RIVA128ZX
graphics processor and to sell the RIVA128 and RIVA128ZX graphics processors
in consideration for a royalty payment to the Company. Under the ST Agreement,
ST also has a worldwide license to incorporate the technology underlying the
RIVA128 and RIVA128ZX graphics processors (including the source code and
architecture) (the "RIVA Technology") in its own products, subject to certain
limitations on the modification of such technology, and a right to receive
software engineering and quality assurance support from the Company for the
RIVA Technology through December 31, 1998. Royalty revenue received from ST
pursuant to the ST Agreement represented 6% of the Company's total revenue in
each of the nine months ended September 30, 1997 and the nine months ended
October 25, 1998. The Company expects royalty revenue from ST to decrease in
the quarter ending January 31, 1999 and subsequent quarters.
The NVIDIA sales effort is accompanied by a variety of product and corporate
marketing activities, including technical support and product launches. As
part of the product launch effort, the Company demonstrates new products to
highlight their capabilities. NVIDIA believes these demonstrations help
position its products favorably relative to products of its competitors. The
Company also maintains close relationships with key industry analysts and
trade press, conducts frequent press tours and participates, with its add-in
board manufacturers and OEM customers, in benchmark tests executed by key
trade publications. In addition, the Company sponsors and participates in
industry tradeshows, marketing communications and market development
activities designed to generate awareness of the Company and its products. The
Company intends to continue to devote significant resources toward
establishing brand recognition, including advertising in key newspapers and
trade magazines and participation in graphics newsgroups and web sites. The
Company also uses its corporate web site to promote the Company and its
products.
To encourage software title developers and publishers to develop games
optimized for platforms utilizing the Company's products, the Company seeks to
establish and maintain strong relationships in the software development
community. Engineering and marketing personnel interact with and visit key
software developers to promote and discuss the Company's products, seeking
product requirements and solving technical problems. The Company's developer
program makes products available to partners prior to volume availability to
encourage the development of software titles that are optimized for the
Company's products.
MANUFACTURING
The Company has a "fabless" manufacturing strategy whereby the Company
employs world class suppliers for all phases of the manufacturing process,
including fabrication, assembly and testing. This strategy leverages the
expertise of industry-leading, ISO-certified suppliers in such areas as
fabrication, assembly, quality control and assurance, reliability and testing,
and allows the Company to avoid the significant costs and risks associated
with owning and operating such manufacturing operations. These suppliers also
are responsible for procurement
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of raw materials used in the production of the Company's products. As a
result, the Company can focus its resources on product design, additional
quality assurance, marketing and customer support.
The fabrication of semiconductors is a complex process. Contaminants,
defects in masks used to print circuits on wafers, difficulties in the
fabrication process and other factors can cause a substantial percentage of
wafers to be rejected or a significant number of die on each wafer to be
nonfunctional. These problems are difficult to diagnose and time-consuming and
expensive to remedy. As a result, semiconductor companies frequently encounter
difficulties in achieving acceptable product yields. When production of a new
product begins, as with the RIVA TNT graphics processor, the Company typically
pays for wafers, which may or may not have any functional products.
Accordingly, the Company bears the financial risk until production is
stabilized. Once production is stabilized, the Company pays for functional die
only. Failure to achieve acceptable yields from any current or future third-
party manufacturer has in the past and would in the future materially
adversely affect the Company's business, financial condition and results of
operations. For example, the Company released its RIVA128ZX graphics processor
in March 1998 and experienced difficulty with volume production of such
product. The lower yields resulting from such difficulties resulted in higher
expenses and lower revenues in the quarter ended July 26, 1998, as the Company
was not able to timely supply such product to its customers.
The RIVA TNT and RIVA128ZX graphics processors are manufactured by TSMC and
assembled and tested by Amkor. The RIVA TNT graphics processor is also
assembled and tested by Siliconware. The Company receives semiconductor
products from its subcontractors, performs incoming quality assurance and
ships them to its add-in board manufacturer customers, such as ASUSTeK,
Canopus, Creative, Diamond, ELSA and Leadtek from its location in Santa Clara.
The add-in board manufacturers then produce boards, combine NVIDIA software
with their own software and ship the product to the retail and system
integrator market as add-in boards or to OEMs, such as Compaq, Dell, Gateway,
IBM, Micron and Packard Bell NEC, for inclusion in the OEMs' products.
In the event of production difficulties, shortages or delays experienced by
any one of its suppliers, the Company's business, financial condition or
results of operation may be adversely impacted. Furthermore, although quality
assurance measures have been taken, there can be no guarantee against defects
affecting the quality, performance or reliability of the Company's products.
Any such defects could require costly product recalls or cessation of
shipments, adversely affecting the Company's business, financial condition and
results of operations, and resulting in a decline of revenues, increased costs
(associated with return, repair, replacement and shrinkage associated with
such defects), and cancellations or rescheduling of customer orders and
shipments. See "Risk Factors--Dependence on Third-Party Manufacturers; Absence
of Manufacturing Capacity; Manufacturing Risks," "--Dependence on ST
Microelectronics," "--Manufacturing Yields," "--Transition to New
Manufacturing Process Technologies," "--Dependence on Third-Party
Subcontractors for Assembly and Testing" and "--Risks of Product Defects and
Incompatibilities; Product Liability."
RESEARCH AND DEVELOPMENT
The Company believes that the continued introduction of new and enhanced
products designed to deliver leading 3D graphics performance will be essential
to its future success. NVIDIA's research and development strategy is to focus
on concurrently developing multiple generations of devices using independent
design teams. The Company's research and development team has enabled NVIDIA
to deliver award-winning products to its OEM customers. The RIVA family of
graphics processors has enabled its customers to win over 180 awards from
recognized industry publications, including PC Magazine, PC Computing, PC
World, Computer Gaming World, PC Games and CNET.
NVIDIA's research and development efforts are performed within specialized
groups consisting of software engineering, hardware engineering, VLSI design
engineering, process engineering, and architecture and algorithms. These
groups act as a pipeline designed to allow the efficient simultaneous
development of new products. The software engineering group is responsible for
the development of drivers for the various software APIs. The hardware
engineering group designs and develops new product hardware. The VLSI design
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engineering group maps the Company's design ideas to specific silicon
structures, and the process engineering group determines how these devices
will be fabricated and communicates with the Company's manufacturers. The
architecture and algorithms group is responsible for maintaining and further
developing what the Company believes is an extensible product architecture,
allowing the Company to continually add features to its products without
sacrificing compatibility or incurring significant redesign costs.
A critical component of the Company's product development effort is its
partnerships with leaders in the CAD industry. The Company has invested
significant resources to develop relationships with industry leaders,
including Avant! Corporation, Cadence Design Systems, Inc., IKOS Systems, Inc.
and Synopsys, Inc. The Company believes that by forming these relationships,
and utilizing next-generation development tools to design, simulate and verify
its products, NVIDIA will be able to remain at the forefront of the 3D
graphics market and to continue to develop products on a rapid basis that
utilize leading-edge technology.
The Company has substantially increased its engineering and technical
resources and has 97 full-time employees engaged in research and development.
Expenditures for research and development after adjustments for contract
funding were $2.4 million, $1.2 million and $7.1 million in 1995, 1996 and
1997, respectively.
COMPETITION
The market for 3D graphics processors for mainstream PCs in which the
Company competes is intensely competitive and is characterized by rapid
technological change, evolving industry standards and declining ASPs. NVIDIA
believes that the principal factors of competition in this market are
performance, conformity to industry-standard APIs, software support, access to
customers and distribution channels, manufacturing capabilities, price of
graphics processors and total system costs of add-in boards. The Company
expects competition to increase both from existing competitors and new market
entrants with products that may be less costly than the Company's 3D graphics
processors or may provide better performance or additional features not
provided by the Company's products. There can be no assurance that the Company
will be able to compete successfully in the emerging mainstream PC graphics
market.
NVIDIA's primary source of competition is from companies that provide or
intend to provide 3D graphics solutions for the mainstream PC market. These
include (i) new entrants in the 3D graphics processor market with existing
presence in the PC market, such as Intel, (ii) suppliers of graphics add-in
boards that utilize their internally developed graphics chips, such as ATI and
Matrox, (iii) suppliers of 2D graphics chips that are introducing 3D
functionality as part of their existing solutions, such as S3 and Trident,
(iv) companies that have traditionally focused on the professional market and
provide high end 3D solutions for PCs and workstations, including 3Dlabs,
Real3D, SGI, Evans and Intergraph, and (v) companies with strength in the
video game market, such as 3Dfx and VideoLogic.
In March 1998, Intel began shipping the i740, a 3D graphics accelerator that
is targeted at the mainstream PC market. Intel has significantly greater
resources than the Company, and there can be no assurance that the Company's
products will compete effectively against the i740 or any future products
introduced by Intel, that the Company will be able to compete effectively
against Intel or that Intel will not introduce additional products that are
competitive with the Company's products in either performance or price or
both. NVIDIA expects Intel to continue to invest heavily in research and
development and new manufacturing facilities, to maintain its position as the
largest manufacturer of PC microprocessors and one of the largest
manufacturers of motherboards, to increasingly dominate the PC platform and to
promote its product offerings through advertising campaigns designed to
engender brand loyalty among PC users. Intel may in the future develop
graphics add-in cards or graphics-enabled motherboards using its i740 3D
graphics accelerators or other graphics accelerators, which could directly
compete with graphics add-in cards or graphics-enabled motherboards that the
Company's customers may develop. In addition, due to the widespread industry
acceptance of Intel's microprocessor architecture and interface architecture,
including its AGP, Intel exercises significant influence over the PC industry
generally, and any significant modifications by Intel to the AGP, the
microprocessor or other aspects of
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the PC microprocessor architecture could result in incompatibility with the
Company's technology, which would have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, any delay in the public release of information relating to such
modifications could have a material adverse effect on the Company's business,
financial condition or results of operations.
In April 1998, SGI and Intel announced a strategic relationship, which
includes a broad patent cross-license agreement. The Company believes that
this agreement will provide SGI with access to Intel processors for the
development of SGI workstations. In addition, the Company believes that under
the cross-license agreement Intel will have access to SGI graphics patents,
which may allow Intel to compete more effectively with the Company. SGI also
may compete directly with the Company as a result of this relationship with
Intel. There can be no assurance that the Company will be able to compete
successfully against SGI or Intel. SGI filed a patent infringement lawsuit
against the Company in April 1998. See "--Legal Proceedings".
In December 1998, Intel and S3 announced a strategic relationship, which
included a 10-year patent and technology cross-license agreement. Pursuant to
this agreement it was announced that S3 obtained a license to Intel's "P6"
system bus and future bus designs, which license will allow S3 to produce a
compatible integrated core and graphics chip. As a result of this
relationship, either party may become a more effective competitor of the
Company, which could have a material adverse effect on the Company's business,
financial condition or results of operations.
In addition to Intel, the Company competes with suppliers of graphics add-in
boards that utilize their internally developed graphics chips, such as ATI and
Matrox. NVIDIA also competes with companies that typically have operated in
the PC 2D graphics market and that now offer 3D graphics capability as an
enhancement to their 2D graphics solutions, such as S3 and Trident. Many of
these competitors have introduced 3D graphics functionality on new versions of
existing graphics chips. In addition, the Company's competitors include
companies that traditionally have focused on the production of high-end 3D
graphics systems targeted at the professional market, such as 3Dlabs,
Intergraph, Real3D and SGI. While these companies produce high performance 3D
graphics systems, they historically have done so at a significantly higher
price point than the Company and have focused on the professional and
engineering market. Some of these companies are developing lower cost versions
of their 3D graphics technology to bring workstation-like 3D graphics to
mainstream PCs, and there can be no assurance that the Company will be able to
compete successfully against them. NVIDIA also competes with companies that
have recently entered or are expected to enter the market with an integrated
3D/2D graphics solution, but which have not traditionally manufactured 2D
graphics solutions, such as 3Dfx. In addition to the Company's known
competitors, the Company anticipates that there will be new entrants in the
graphics processor market, and there can be no assurance that the Company will
compete effectively against any such new competitors.
The market for 3D graphic processors is highly fragmented and undergoing a
period of consolidation. Several of the Company's competitors and customers
have merged with other industry participants in order to strengthen their
competitive position. For example, ATI acquired Chromatic Research Inc., a
media processor company, and Micron, one of the Company's OEM customers,
acquired Rendition, Inc., a 3D graphics accelerator company, to explore
embedded DRAM applications in the graphics arena. In addition, 3Dfx recently
announced the execution of an acquisition agreement with STB, an add-in board
manufacturer and significant customer of the Company. The Company expects that
as a result of the pending acquisition, sales to STB will be reduced
significantly from prior levels, and that STB may no longer continue to be a
significant customer of the Company. Accordingly, there can be no assurance
that 3Dfx's pending acquisition of STB will not have a material adverse effect
on the Company's business, financial condition or results of operations.
NVIDIA expects that consolidation in the 3D graphics market will continue and
there can be no assurance that such consolidation will not involve any more of
the Company's add-in board manufacturers, OEM customers, or competitors. The
consolidation of the Company's customers with other customers or with
competitors of the Company could result in a material decline in the Company's
revenue, which could have a material adverse effect on the Company's business,
financial condition and results of operations. Consolidation of the Company's
competitors would have the effect of strengthening the competitive position of
such
47
<PAGE>
competitors, which could result in pressure on the pricing of the Company's
products. Longer than expected decreases in the average selling price of the
Company's products could have a material adverse effect on the Company's
business, financial condition or results of operations.
Several of the Company's current and potential competitors have
substantially greater financial, technical, manufacturing, marketing,
distribution and other resources, greater name recognition and market
presence, broader product lines for the PC market, longer operating histories,
lower cost structures and larger customer bases than the Company. As a result,
they may be able to adapt more quickly to new or emerging technologies and
changes in customer requirements. Regardless of the relative qualities of the
Company's products, the market power, product breadth and customer
relationships of its larger competitors, particularly Intel, can be expected
to provide such competitors with substantial competitive advantages. The
Company does not seek to compete on the basis of price alone, but may be
forced to lower prices to compete effectively. There can be no assurance that
the Company will be able to compete successfully in the emerging mainstream PC
3D graphics market.
PATENTS AND PROPRIETARY RIGHTS
The Company relies primarily on a combination of patent, mask-work
protection, trademarks, copyrights, trade secret laws, employee and third-
party nondisclosure agreements and licensing arrangements to protect its
intellectual property. The Company has 22 issued patents and 18 patent
applications pending in the United States. Such issued patents have expiration
dates from May 2015 to November 2016. The issued patents and pending patent
applications relate to technology developed by the Company in connection with
the development of its 3D graphics processors, including the RIVA128,
RIVA128ZX and RIVA TNT graphics processors. The Company has no foreign patents
or patent applications. The Company seeks to file for patents that have broad
application in the semiconductor industry and that would provide a competitive
advantage. However, there can be no assurance that the Company's pending
patent application or any future applications will be approved, that any
issued patents will provide the Company with competitive advantages or will
not be challenged by third parties, or that the patents of others will not
have an adverse effect on the Company's ability to do business. In addition,
there can be no assurance that others will not independently develop
substantially equivalent intellectual property or otherwise gain access to the
Company's trade secrets or intellectual property, or disclose such
intellectual property or trade secrets, or that the Company can effectively
protect its intellectual property. The Company has licensed technology from
third parties for incorporation in the Company's graphics processors and it
expects to continue to enter into such agreements for future products. Such
licenses may result in royalty payments to third parties, the cross-license of
technology by the Company or payment of other consideration. If such
arrangements are not concluded on commercially reasonable terms, the Company's
business, financial condition or results of operations could be materially
adversely affected. A failure by the Company to meaningfully protect its
intellectual property could have a material adverse effect on the Company's
business, financial condition or results of operations.
The Company attempts to protect its trade secrets and other proprietary
information through confidentiality agreements with manufacturers and other
partners, proprietary information agreements with employees and consultants
and other security measures. The Company also relies on trademarks and trade
secret laws to protect its intellectual property. Despite these efforts, there
can be no assurance that others will not gain access to the Company's trade
secrets, or that the Company can meaningfully protect its intellectual
property. In addition, effective trade secret protection may be unavailable or
limited in certain foreign countries. Although the Company intends to protect
its rights vigorously, there can be no assurance that such measures will be
successful.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which has resulted in
significant and often protracted and expensive litigation. The 3D graphics
market in particular has been characterized recently by the aggressive pursuit
of intellectual property positions, and the Company expects its competitors to
continue to pursue aggressive intellectual property positions. In April 1998,
SGI filed a patent infringement lawsuit against the Company, in May 1998, S3
filed a patent infringement lawsuit against the Company and in September 1998,
3Dfx filed a patent infringement
48
<PAGE>
lawsuit against the Company. See "--Legal Proceedings." In addition, the
Company from time to time has received notices alleging that the Company has
infringed patents or other intellectual property rights owned by third
parties. Based upon the Company's evaluation of the circumstances, it may seek
to obtain a license. In any given case, there is a risk that a license will
not be available on terms that the Company considers reasonable, or that
litigation will ensue. The Company currently has three patent infringement
lawsuits pending against it, as discussed above. The Company expects that, as
the number of hardware and software patents issued continues to increase, and
as competition in the markets addressed by the Company intensifies, the volume
of intellectual property claims such as these will increase. ST has certain
patent licenses that in some cases may allow ST to manufacture the Company's
products without infringing third-party patents. As the Company's products are
manufactured by TSMC or other manufacturers, such licenses will no longer
benefit the Company and therefore the risk of a third-party claim of patent
infringement against the Company will increase. In the event infringement
claims are made against the Company, the Company may seek licenses under such
patents or other intellectual property rights. However, there can be no
assurance that licenses will be offered or that the terms of any offered
licenses will be acceptable to the Company. The failure to obtain a license
from a third party for technology used by the Company could cause the Company
to incur substantial liabilities and to suspend the manufacture of products.
Furthermore, the Company may initiate claims or litigation against third
parties for infringement of the Company's proprietary rights or to establish
the validity of the Company's proprietary rights. The Company has agreed to
indemnify certain customers for claims of infringement arising out of sale of
the Company's product. Litigation by or against the Company or such customers
concerning infringement would likely, and the SGI, S3 and 3Dfx litigation
will, result in significant expense to the Company and divert the efforts of
the Company's technical and management personnel, whether or not such
litigation results in a favorable determination for the Company. In the event
of an adverse result in the SGI, S3, 3Dfx or other litigation, the Company
could be required to pay substantial damages, (which could include treble
damages) cease the manufacture, use and sale of infringing products, expend
significant resources to develop non-infringing technology, discontinue the
use of certain processes or obtain licenses for the infringing technology.
There can be no assurance that the Company would be successful in such
development or that such licenses would be available on reasonable terms, or
at all, and any such development or license could require expenditures by the
Company of substantial time and other resources. Although patent disputes in
the semiconductor industry have often been settled through cross-licensing
arrangements, there can be no assurance that, in the event that SGI, S3, 3Dfx
or any other third party makes a successful claim against the Company or its
customers, a cross-licensing arrangement could be reached. If such a license
is not made available to the Company on commercially reasonable terms, the
Company's business, financial condition or results of operations would be
materially adversely affected.
There can be no assurance that infringement claims by third parties or
claims for indemnification by other customers or end users of the Company's
products resulting from infringement claims will not be asserted in the future
or that such possible assertions or the assertions currently raised in the
SGI, S3 and 3Dfx litigation, if proven to be true, will not materially
adversely affect the Company's business, financial condition or results of
operations. Any limitations on the Company's ability to market its products,
or delays and costs associated with redesigning its products or payments of
license fees to third parties, or any failure by the Company to develop or
license a substitute technology on commercially reasonable terms, any of which
may result from the SGI, S3 or 3Dfx litigation, could have a material adverse
effect on the Company's business, financial condition and results of
operations.
EMPLOYEES
As of October 25, 1998, the Company had 184 employees, 97 of whom were
engaged in engineering and 87 of whom were engaged in sales, marketing,
operations and administrative positions. No employee of the Company is covered
by collective bargaining agreements, and the Company believes that its
relationship with its employees is good.
The Company's ability to operate successfully will depend in significant
part upon the continued service of certain key technical and managerial
personnel, and its continuing ability to attract and retain additional highly
49
<PAGE>
qualified technical and managerial personnel. Competition for such personnel
is intense, and there can be no assurance that the Company can retain such
personnel or that it can attract or retain other highly qualified technical
and managerial personnel in the future, including key sales and marketing
personnel. The loss of key personnel or the inability to hire and retain
qualified personnel could have a material adverse effect on the Company's
business, financial condition or results of operations. See "Risk Factors--
Dependence on Key Personnel."
FACILITIES
The Company leases approximately 89,000 square feet in one building in Santa
Clara, California, pursuant to a lease that expires in December 2002. The
Company also leases a design center consisting of approximately 98,000 square
feet in one building in Durham, North Carolina, pursuant to a lease that
expires in March 2002. The Company believes that its existing facilities are
adequate to meet its needs for the foreseeable future.
LEGAL PROCEEDINGS
On April 9, 1998, the Company was notified that SGI had filed a patent
infringement lawsuit against the Company in the United States District Court
for the District of Delaware. The suit alleges that the sale and use of the
Company's RIVA family of 3D graphics processors infringes a United States
patent held by SGI. The suit seeks unspecified damages (including treble
damages), an order permanently enjoining further alleged infringement and
attorneys' fees. On May 11, 1998, the Company was notified that S3 had filed a
patent infringement lawsuit against the Company in the United States District
Court for the Northern District of California. The suit alleges that the sale
and use of the Company's RIVA family of 3D graphics processors infringes three
United States patents held by S3. The suit seeks unspecified damages
(including treble damages), an order permanently enjoining further alleged
infringement and attorneys' fees. On September 21, 1998, the Company was
notified that 3Dfx had filed a patent infringement lawsuit against the Company
in the United States District Court for the Northern District of California.
The suit alleges that the sale and use of the Company's RIVA TNT product
infringes a United States patent held by 3Dfx. The suit seeks unspecified
damages (including treble damages), an order permanently enjoining further
alleged infringement and attorneys' fees. The Company has filed answers to
each suit and has filed counterclaims asserting that the patents in each suit
are neither infringed nor valid. The Company believes that with respect to
each of the patent claims at issue in such lawsuits, either such claims are
invalid or the Company's products do not infringe such claims. This belief is
based on the Company's investigation to date and, with respect to the patent
claims at issue in the suits by SGI and S3, upon an opinion from patent
counsel to the Company. The Company expects to receive an opinion from patent
counsel that its products do not infringe the patent claims at issue in the
3Dfx lawsuit. The Company has and intends to continue to defend itself
vigorously with respect to all three lawsuits.
The litigation with SGI, S3 and 3Dfx has resulted, and the Company expects
that it will continue to result, in significant expense to the Company and
divert the efforts of the Company's technical and management personnel,
whether or not such litigation results in a favorable determination for the
Company. In the event of an adverse result in either suit, the Company could
be required to do one or more of the following: pay substantial damages
(including treble damages); preliminarily or permanently cease the
manufacture, use and sale of any infringing products; expend significant
resources to develop non-infringing technology; or obtain a license from SGI,
S3 or 3Dfx for any infringing technology. Any of these suits could result in
limitations on the Company's ability to market its products, delays and costs
associated with redesigning its products or payments of license fees or other
payments to SGI, S3 or 3Dfx, any of which would have a material adverse effect
on the Company's business, financial condition and results of operations.
50
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
Certain information regarding the Company's executive officers, key
employees and directors as of December 7, 1998 is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jen-Hsun Huang.............. 35 President, Chief Executive Officer and Director
Mark K. Allen............... 43 Vice President, Operations
Jeffrey D. Fisher........... 40 Vice President, Sales
Christine B. Hoberg......... 43 Chief Financial Officer
David B. Kirk............... 38 Chief Scientist
Chris A. Malachowsky........ 39 Vice President, Engineering
Lewis R. Paceley............ 42 Vice President, Corporate Marketing
Curtis R. Priem............. 39 Chief Technical Officer
Daniel F. Vivoli............ 38 Vice President, Product Marketing
Tench Coxe (1).............. 40 Director
Harvey C. Jones, Jr.(1)..... 45 Director
William J. Miller........... 53 Director
A. Brooke Seawell(2)........ 50 Director
Mark A. Stevens(2).......... 38 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Jen-Hsun Huang co-founded the Company in April 1993 and has served as
President, Chief Executive Officer and a member of the Board of Directors of
the Company since its inception. From 1985 to 1993, Mr. Huang was employed at
LSI Logic Corporation, a computer chip manufacturer, where he held a variety
of positions, most recently as Director of Coreware business unit responsible
for LSI's "system-on-a-chip" strategy. From 1983 to 1985, Mr. Huang was a
microprocessor designer for Advanced Micro Devices, a semiconductor company.
Mr. Huang holds a B.S.E.E. degree from Oregon State University and an M.S.E.E.
degree from Stanford University.
Mark K. Allen has been Vice President, Operations for the Company since
October 1998. From February 1995 to September 1998, Mr. Allen was Senior Vice
President of Operations for C-Cube Microsystems, a digital video technology
company. From March 1987 to February 1993, Mr. Allen was Vice President of
Worldwide Manufacturing Operations for Cypress Semiconductor Corp., a
manufacturer and supplier of integrated circuits. Mr. Allen holds a B.S.E.E.
degree from Purdue University.
Jeffrey D. Fisher has been Vice President, Sales for the Company since July
1994. From September 1988 to July 1994, Mr. Fisher held various positions at
Weitek Corporation, a semiconductor technology company, where his last
position was as Director of World Wide Sales. Mr. Fisher holds a B.S.E.E.
degree from Purdue University and an M.B.A. degree from Santa Clara
University.
Christine B. Hoberg has been Chief Financial Officer of the Company since
December 1998. From June 1992 to December 1998, Ms. Hoberg held various
positions at Quantum Corporation, a mass storage company, where her last
position was as Vice President, Corporate Controller. Ms. Hoberg holds a B.A.
in German Studies from Stanford University and is a certified public
accountant.
David B. Kirk has been Chief Scientist for the Company since January 1997.
From June 1996 to January 1997, Dr. Kirk was a software and technical
management consultant. From 1993 to 1996, Dr. Kirk was Chief Scientist, Head
of Technology for Crystal Dynamics, a video game manufacturing company. From
1989 to 1991, Dr. Kirk was an engineer for Apollo Systems Division of Hewlett-
Packard Company. Dr. Kirk has authored seven patents relating to graphics
design and has authored more than 50 articles on graphics technology. Dr. Kirk
holds B.S. and M.S. degrees in Mechanical Engineering from the Massachusetts
Institute of Technology and M.S. and Ph.D. degrees in Computer Science from
the California Institute of Technology.
51
<PAGE>
Chris A. Malachowsky co-founded the Company in April 1993 and has been Vice
President, Engineering for the Company since that time. From 1987 until April
1993, Mr. Malachowsky was a Senior Staff Engineer for Sun Microsystems, Inc.,
a supplier of enterprise network computing products. From 1980 to 1986,
Mr. Malachowsky was a manufacturing design engineer at Hewlett-Packard
Company. Mr. Malachowsky was a co-inventor of Sun Microsystems' GX graphics
architecture and has authored 39 patents, most of which relate to graphics.
Mr. Malachowsky holds a B.S.E.E. degree from the University of Florida and an
M.S.C.S. degree from Santa Clara University.
Lewis R. Paceley has been Vice President, Corporate Marketing for the
Company since December 1997. From January 1996 until September 1997, Mr.
Paceley was Vice President, Marketing for Cyrix Corporation, a computer
processor manufacturer. From 1982 until December 1995, Mr. Paceley held
various positions at Intel, where his last position was as Marketing Director,
Pentium Pro. Mr. Paceley holds a B.E. degree from Vanderbilt University and an
M.S.E. degree from the University of Michigan.
Curtis R. Priem co-founded the Company in April 1993 and has been Chief
Technical Officer for the Company since that time. From 1986 to January 1993,
Mr. Priem was Senior Staff Engineer at Sun Microsystems where he architected
the GX graphics products, including the world's first single chip GUI
accelerator. From 1984 to 1986, Mr. Priem was a hardware engineer at GenRad,
Inc., a supplier of diagnostic equipment for electronic products. From 1982 to
1984, Mr. Priem was a staff engineer for Vermont Microsystems, Inc., a
personal computer company, where he architected IBM's Professional Graphics
Adapter, the PC industry's first graphics processor. Mr. Priem has authored 70
patents, all of which relate to graphics and I/O. Mr. Priem holds a B.S.E.E.
degree from Rensselaer Polytechnic Institute.
Daniel F. Vivoli has been Vice President, Product Marketing for the Company
since December 1997. From October 1988 to December 1997, Mr. Vivoli held
various positions at Silicon Graphics, Inc., a computing technology company,
including Product Marketing Director, Director of Marketing--Advanced Graphics
Division and --Interactive Systems Division, and finally Vice President of
Marketing. From 1983 to 1988, Mr. Vivoli held various marketing positions at
Hewlett-Packard Company. Mr. Vivoli holds a B.S.E.E. degree from the
University of Illinois at Champaign-Urbana.
Tench Coxe has been a director of the Company since June 1993. Mr. Coxe is a
managing director of Sutter Hill Ventures, a venture capital investment firm.
Prior to joining Sutter Hill Ventures in 1987, Mr. Coxe was Director of
Marketing and MIS at Digital Communication Associates. Mr. Coxe holds a B.A.
degree in Economics from Dartmouth College and an M.B.A. degree from the
Harvard Business School. Mr. Coxe also serves on the Board of Directors of
Edify Corporation, a software company, Clarus Corporation, a software company,
and several privately held companies.
Harvey C. Jones, Jr. has served as a director of the Company since November
1993. Since December 1987, Mr. Jones has held various positions at Synopsys,
Inc., a developer of electronic design automation products, where he served as
President through December 1992, as Chief Executive Officer until January 1994
and as Chairman of the Board until February 1998. Prior to joining Synopsys,
Mr. Jones served as President and Chief Executive Officer of Daisy Systems
Corporation, an electronic design automation company that Mr. Jones co-founded
in 1981. Mr. Jones currently serves on the Board of Directors of Synopsys and
Remedy Corporation, a client/server applications software company. Mr. Jones
holds a B.S. degree in Mathematics and Computer Sciences from Georgetown
University and an M.S. degree in Management from the Massachusetts Institute
of Technology.
William J. Miller has served as a director of the Company since November
1994. Mr. Miller has been Chief Executive Officer and Chairman of the Board of
Avid Technology, Inc., a provider of digital tools for multimedia, since April
1996 and has served as President of Avid Technology since September 1996. From
March 1992 to October 1995, Mr. Miller served as Chief Executive Officer of
Quantum Corporation, a mass storage company. He was a member of the Board of
Directors, and Chairman thereof, from, respectively, May 1992 and September
1993 to August 1995. From 1981 to March 1992, he served in various positions
at Control
52
<PAGE>
Data Corporation, a supplier of computer hardware, software and services, most
recently as Executive Vice President and President, Information Services. Mr.
Miller holds a B.A. and a J.D. degree from the University of Minnesota. Mr.
Miller serves on the Board of Directors of Innovex, Inc. and Waters
Corporation, a scientific instrument manufacturing company.
A. Brooke Seawell has served as a director of the Company since December
1997. From January 1997 to August 1998, Mr. Seawell was Executive Vice
President of NetDynamics, Inc., an Internet applications server company. From
March 1991 to January 1997, Mr. Seawell was Senior Vice President and Chief
Financial Officer of Synopsys. Mr. Seawell holds a B.A. degree in Economics
and an M.B.A. degree in Finance and Accounting from Stanford University. Mr.
Seawell serves on the Board of Directors of several privately held companies.
Mark A. Stevens has served as a director of the Company since June 1993. Mr.
Stevens has been a general partner of Sequoia Capital, a venture capital
investment firm, since March 1993. Prior to that time, beginning in July 1989,
he was an associate at Sequoia Capital. Prior to joining Sequoia, he held
technical sales and marketing positions at Intel. Mr. Stevens holds a B.S.E.E.
degree, a B.A. degree in Economics and an M.S. degree in Computer Engineering
from the University of Southern California and an M.B.A. degree from Harvard
Business School. Mr. Stevens currently serves on the Board of Directors of
Aspect Development, Inc., a client/server applications software company,
Terayon Communication Systems, Inc., a cable modem company, and several
privately held companies.
The Company's Board of Directors (the "Board") is currently composed of six
directors. Directors are elected by the stockholders at each annual meeting of
stockholders to serve until the next annual meeting of stockholders or until
their successors are duly elected and qualified. The Company's Certificate of
Incorporation, which will become effective upon the completion of this
offering, provide that the Board will be divided into three classes, Class I,
Class II and Class III with each class serving staggered three-year terms. The
Class I directors, initially Messrs. Miller and Jones, will stand for
reelection or election at the 1999 annual meeting of stockholders. The Class
II directors, initially Messrs. Cox and Stevens, will stand for reelection or
election at the 2000 annual meeting of stockholders. The Class III directors,
initially Messrs. Seawell and Huang, will stand for re-election or election at
the 2001 annual meeting of stockholders.
BOARD COMMITTEES
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee, which currently consists of Messrs. Seawell and Stevens,
reviews the internal accounting procedures of the Company and consults with
and reviews the services provided by the Company's independent auditors. The
Compensation Committee, which currently consists of Messrs. Coxe and Jones,
reviews and recommends to the Board the compensation and benefits of the
Company. The Compensation Committee also administers the issuance of stock
options and other awards under the Company's 1998 Equity Incentive Plan, 1998
Employee Stock Purchase Plan and 1998 Non-Employee Directors' Stock Option
Plan. See "--Employee Benefit Plans."
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation for their services
as members of the Board of Directors, although they are reimbursed for certain
expenses in connection with attendance at Board and Committee meetings. In
July 1996, each of Messrs. Coxe and Stevens were granted an option to purchase
50,000 shares of the Company's Common Stock at an exercise price of $.36 per
share. In November 1993 and August 1996, Mr. Jones was granted options to
purchase 75,000 and 70,000 shares of the Company's Common Stock at exercise
prices of $.05 and $.36 per share, respectively. In November 1994 and
September 1996, Mr. Miller was granted options to purchase 75,000 and 50,000
shares of the Company's Common Stock at exercise prices of $.05 and $.36 per
share, respectively. In December 1997 and December 1998, Mr. Seawell was
granted options to purchase 50,000 and 46,662 shares of the Company's Common
Stock at exercise prices of $3.15 and $7.00 per share, respectively. Non-
employee directors also are eligible to participate in the Company's 1998 Non-
Employee Directors' Stock Option Plan (the "Director's Plan").
53
<PAGE>
On March 30, 1998, each of Messrs. Coxe, Jones, Miller and Stevens was
automatically granted an option to purchase 20,000 shares of the Company's
Common Stock; Mr. Seawell was automatically granted an option to purchase
5,000 shares of the Company's Common Stock; each of Messrs. Coxe and Jones was
automatically granted an option to purchase 2,500 shares of the Company's
Common Stock; and each of Messrs. Miller, Seawell and Stevens was
automatically granted an option to purchase 1,250 shares of the Company's
Common Stock. Each of the foregoing options was granted under the Directors'
Plan at fair market value on the date of grant. See "--Employee Benefit
Plans--1998 Non-Employee Directors' Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to October 1997, the Company did not have a Compensation Committee of
the Board of Directors, and the entire Board participated in all compensation
decisions, except that Mr. Huang did not participate in decisions relating to
his compensation. In October 1997, the Board formed the Company's Compensation
Committee to review and recommend to the Board the compensation and benefits
for the Company's executive officers and administer the Company's stock
purchase and stock option plans. Certain of the Company's directors, or their
affiliated entities, have purchased securities of the Company. See "Certain
Transactions" and "Principal Stockholders."
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded or paid by the
Company during the fiscal year ended December 31, 1997 to (i) the Company's
Chief Executive Officer and (ii) the four other most highly compensated
officers receiving compensation in excess of $100,000 in fiscal 1997
hereinafter (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE(/1/)
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION(2) AWARDS
--------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY ($) OPTIONS (#)
--------------------------- --------------- ------------
<S> <C> <C>
Jen-Hsun Huang.................................... $149,134 0
President and Chief Executive Officer
Jeffrey D. Fisher................................. 202,122 75,000
Vice President, Sales
Richard J. Whitacre............................... 138,750 175,000
Vice President, Operations and Corporate
Engineering
Chris A. Malachowsky.............................. 135,721 0
Vice President, Engineering
Curtis R. Priem................................... 133,125 0
Chief Technical Officer
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission
(the "Commission"), the compensation described in this table does not
include medical, group life insurance or other benefits received by the
Named Executive Officers which are available generally to all salaried
employees of the Company and certain perquisites and other personal
benefits received by the Named Executive Officers, which do not exceed the
lesser of $50,000 or 10% of any such officers salary and bonus disclosed
in this table.
(2) During the fiscal year ending January 31, 1999, the annual salaries of the
Named Executive Officers will be: Mr. Huang--$250,000; Mr. Fisher--
$100,000 (excluding commissions); Mr. Malachowsky--$180,000; and Mr.
Priem--$180,000. Mr. Whitacre resigned from the Company on October 1,
1998.
54
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
fiscal year ended December 31, 1997 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED
--------------------------------------------------- ANNUAL RATES
OF STOCK PRICE
NUMBER OF APPRECIATION FOR
SECURITIES PERCENTAGE OF OPTION TERM
UNDERLYING TOTAL OPTIONS ($)(4)
OPTIONS GRANTED IN EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL 1997(2) ($/SHARE)(3) DATE 5% 10%
---- ---------- -------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jen-Hsun Huang.......... 0 --% $ -- -- $ -- $ --
Jeffrey D. Fisher....... 50,000 1.0 .36 3/23/07 634,000 1,018,000
25,000 .5 .36 5/12/07 317,000 509,000
Richard J. Whitacre..... 175,000 3.5 .36 3/23/07 2,219,000 3,563,000
Chris A. Malachowsky.... 0 -- -- -- -- --
Curtis R. Priem......... 0 -- -- -- -- --
</TABLE>
- --------
(1) Options generally vest at a rate of 25% on the first anniversary of the
vesting commencement date and 6.25% each quarter thereafter and have a
term of 10 years. Options are immediately exercisable; however, the shares
purchasable under such options are subject to repurchase by the Company at
the original exercise price paid per share upon the optionee's cessation
of service prior to the vesting of such shares.
(2) Based on an aggregate of 4,841,232 shares subject to options granted to
persons who were employees of the Company in the fiscal year ended
December 31, 1997, including the Named Executive Officers.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board
of Directors.
(4) The potential realizable value is calculated based on the term of the
option at the time of grant (10 years) and an assumed initial public
offering price of $8.00 per share. Stock price appreciation of 5% and 10%
is assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent the Company's prediction of its stock
price performance. The potential realizable value is calculated based on
the deemed value at the date of grant and assumes that the deemed value
appreciates from the date of grant at the indicated annual rate compounded
annually for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at
the appreciated price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND 1997 YEAR-END OPTION
VALUES
The following table sets forth for each of the Named Executive Officers the
number and value of securities underlying unexercised options held by the
Named Executive Officers at December 31, 1997:
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED ON UNEXERCISED OPTIONS AT DECEMBER IN-THE-MONEY OPTIONS AT
EXERCISE VALUE 31, 1997 (#) DECEMBER 31, 1997 ($)(2)
NAME (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE
- ---- ----------- ------------ ------------------------------- -------------------------
<S> <C> <C> <C> <C>
Jen-Hsun Huang.......... 0 $ -- -- $ --
Jeffrey D. Fisher....... 0 0 135,000/0 376,650/0
Richard J. Whitacre..... 30,000 0 205,000/0 571,950/0
Chris A. Malachowsky.... 0 -- -- --
Curtis R. Priem......... 0 -- -- --
</TABLE>
- --------
(1) Options are immediately exercisable; however, the shares purchasable under
such options are subject to repurchase by the Company at the original
exercise price paid per share upon the optionee's cessation of service
prior to the vesting of such shares.
(2) Based on the difference between the fair market value of the Common Stock
at December 31, 1997 as determined by the Board of Directors and the
exercise price.
55
<PAGE>
EMPLOYEE BENEFIT PLANS
1998 EQUITY INCENTIVE PLAN
The Company's 1998 Equity Incentive Plan (the "Incentive Plan") was adopted
in February 1998 and amended in March 1998 and replaces the Company's Equity
Incentive Plan adopted in May 1993 (as amended in March 1995, January 1996 and
December 1997). An aggregate of 15,000,000 shares of Common Stock currently
are authorized for issuance under the Incentive Plan. However, each year on
the last day of each fiscal year, starting with the year ending January 31,
1999, the aggregate number of shares of Common Stock that are available for
issuance will automatically be increased by a number of shares equal to five
percent (5%) of the Company's outstanding Common Stock on such date, including
on an as-if-converted basis Preferred Stock and convertible notes, and
outstanding options and warrants, calculated using the treasury stock method.
The Incentive Plan provides for the grant of incentive stock options, as
defined under the Internal Revenue Code of 1986, as amended (the "Code"), to
employees (including officers and employee directors) and nonstatutory stock
options, restricted stock purchase awards and stock bonuses to employees
(including officers and employee directors), directors and consultants of the
Company and its affiliates. The Incentive Plan is administered by the
Compensation Committee, which determines the recipients and types of awards to
be granted, including the exercise price, number of shares subject to the
award and the exercisability thereof.
The terms of options granted under the Incentive Plan may not exceed ten
years. The Compensation Committee determines the exercise price of options
granted under the Incentive Plan. However, the exercise price for an incentive
stock option cannot be less than 100% of the fair market value of the Common
Stock on the date of the option grant, and the exercise price for a
nonstatutory stock option cannot be less than 85% of the fair market value of
the Common Stock on the date of the option grant. Options granted under the
Incentive Plan vest at the rate specified in the option agreement. Generally,
the optionee may not transfer a stock option other than by will or the laws of
descent or distribution. However, an optionee may designate a beneficiary who
may exercise the option following the optionee's death. An optionee whose
service relationship with the Company or any affiliate ceases for any reason
may exercise vested options for the term provided in the option agreement.
No incentive stock option (and prior to the Company's stock being publicly
traded, no nonstatutory stock option) may be granted to any person who, at the
time of the grant, owns (or is deemed to own) stock possessing more than 10%
of the total combined voting power of the Company or any affiliate of the
Company, unless the option exercise price is at least 110% of the fair market
value of the stock subject to the option on the date of grant and the term of
the option does not exceed five years from the date of grant. In addition, the
aggregate fair market value, determined at the time of grant, of the shares of
Common Stock with respect to which incentive stock options are exercisable for
the first time by an optionee during any calendar year (under the Incentive
Plan and all other stock plans of the Company and its affiliates) may not
exceed $100,000.
When the Company becomes subject to Section 162(m) of the Code (which denies
a deduction to publicly held corporations for certain compensation paid to
specified employees in a taxable year to the extent that the compensation
exceeds $1,000,000), no person may be granted options under the Incentive Plan
covering more than 1,000,000 shares of Common Stock in any calendar year.
Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the Incentive Plan. The Compensation Committee has the authority
to reprice outstanding options or to offer optionees the opportunity to
replace outstanding options with new options for the same or a different
number of shares. Both the original and new options will count toward the Code
Section 162(m) limitation set forth above.
Restricted stock purchase awards granted under the Incentive Plan may be
granted pursuant to a repurchase option in favor of the Company in accordance
with a vesting schedule and at a price determined by the Compensation
Committee. Stock bonuses may be awarded in consideration of past services
without a purchase payment. Rights under a stock bonus or restricted stock
bonus agreement generally may not be transferred other than by will or the
laws of descent and distribution during such period as the stock awarded
pursuant to such an agreement remains subject to the agreement.
56
<PAGE>
If there is any sale of substantially all of the Company's assets, any
merger or any consolidation in which the Company is not the surviving
corporation, all outstanding awards under the Incentive Plan either will be
assumed or substituted for by any surviving entity. If the surviving entity
determines not to assume or substitute for such awards, the time during which
awards held by persons still serving the Company or an affiliate may be
exercised will be accelerated and the awards terminated if not exercised prior
to the sale of assets, merger or consolidation.
As of November 30, 1998, 4,707,110 shares of Common Stock had been issued
upon the exercise of options granted under the Incentive Plan, options to
purchase 7,291,708 shares of Common Stock were outstanding and 2,591,582
shares remained available for future grant. The Incentive Plan will terminate
in February 2008 unless terminated by the Board before then. As of November
30, 1998, stock awards or restricted stock covering 647,932 shares of the
Company's Common Stock had been granted under the Incentive Plan. Of such
shares, 238,332 shares have been repurchased by the Company and returned to
the Incentive Plan.
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The Directors' Plan was adopted in February 1998 and amended in March 1998
and provides for the automatic grant of options to purchase shares of Common
Stock to non-employee directors of the Company who are not employees of or
consultants to the Company or an affiliate of the Company (a "Non-Employee
Director"). The Compensation Committee administers the Directors' Plan. The
aggregate number of shares of Common Stock that may be issued pursuant to
options granted under the Directors' Plan is 300,000 shares.
Pursuant to the terms of the Directors' Plan, after the effective date of
the initial public offering of the Company's Common Stock, each person who is
elected or appointed for the first time to be a Non-Employee Director
automatically shall, upon the date of his or her initial election or
appointment to be a Non-Employee Director by the Board or stockholders of the
Company, be granted an option to purchase 50,000 shares of Common Stock (an
"Initial Grant").
On March 30, 1998 and on the day following each Annual Meeting of
Stockholders of the Company ("Annual Meeting") commencing with the Annual
Meeting in 1999, each person who is then a Non-Employee Director automatically
shall be granted one or more options to purchase shares of Common Stock as
follows: (i) Each Non-Employee Director shall be granted an option to purchase
20,000 shares of Common Stock of the Company (an "Annual Grant"); provided,
however, that if the person has not been serving as a Non-Employee Director
for the entire period since the prior Annual Meeting (or since March 30, 1997
for the grant on March 30, 1998), then the number of shares granted shall be
reduced pro rata for each full quarter prior to the date of grant during which
such person did not serve as a Non-Employee Director; and (ii) each Non-
Employee Director who is a member of a committee of the Board shall be granted
an option to purchase 5,000 shares of Common Stock of the Company for each
such committee (a "Committee Grant"); provided, however, that if the person
has not been serving on such committee since the prior Annual Meeting (or
since March 30, 1997 for the grant on March 30, 1998), then the number of
shares granted shall be reduced pro rata for each full quarter prior to the
date of grant during which such person did not serve as a Non-Employee
Director.
Initial Grants will vest monthly over the four-year period following the
date of grant such that the entire Initial Grant shall become exercisable on
the fourth anniversary of the date of grant. With respect to Annual Grants and
Committee Grants, if the optionee has attended at least 75% of the regularly
scheduled meetings of the Board or the committee, as applicable, held between
the date of grant of the option and the one-year anniversary of the date of
grant of the option, then such option shall vest and become exercisable in
full on the one-year anniversary of the date of grant. If the optionee's
service as a director or committee member, as the case may be, terminates
between the date of grant of the option and the one-year anniversary of the
date of grant of the option due to the disability or death of the optionee,
then the option shall immediately vest and become exercisable on a monthly pro
rata basis. If the director fails to attend at least 75% of the regularly
scheduled meetings of the Board or the committee, as applicable, then such
optionee's option shall vest annually over the
57
<PAGE>
four-year period following the date of grant at the rate of 10% per year for
the first three years and 70% for the fourth year, such that the entire option
shall become exercisable on the four-year anniversary of the date of grant of
the option.
The exercise price of the options granted under the Directors' Plan will be
equal to the fair market value of the Common Stock on the date of grant. No
option granted under the Directors' Plan may be exercised after the expiration
of ten years from the date it was granted. Options granted under the
Directors' Plan generally are non-transferable except to family members, a
family trust, a family partnership or a family limited liability company.
However, an optionee may designate a beneficiary who may exercise the option
following the optionee's death. An optionee whose service relationship with
the Company or any affiliate (whether as a Non-Employee Director of the
Company or subsequently as an employee, director or consultant of either the
Company or an affiliate) ceases for any reason may exercise vested options for
the term provided in the option agreement (12 months generally, 18 months in
the event of death).
If there is any sale of substantially all of the Company's assets, any
merger or any consolidation in which the Company is not the surviving
corporation or other change in control of the Company, all outstanding awards
under the Directors' Plan either will be assumed or substituted for by any
surviving entity. If the surviving entity determines not to assume or
substitute for such awards, the awards shall terminate if not exercised prior
to such sale of assets, merger or consolidation.
As of November 30, 1998, options to purchase 93,750 shares of Common Stock
were outstanding and 206,250 shares remained available for future grant under
the Directors' Plan. Unless terminated sooner, the Directors' Plan will
terminate in February 2008.
EMPLOYEE STOCK PURCHASE PLAN
In February 1998, the Board approved the Employee Stock Purchase Plan (the
"Purchase Plan"), covering an aggregate of 500,000 shares of Common Stock. The
Purchase Plan is intended to qualify as an "employee stock purchase plan"
within the meaning of Section 423 of the Code. Under the Purchase Plan, the
Board may authorize participation by eligible employees, including officers,
in periodic offerings following the adoption of the Purchase Plan. Under the
Purchase Plan, the offering period for any offering will be no longer than 27
months. Under the plan offering adopted pursuant to the Purchase Plan, each
offering period has been set at six months.
Employees are eligible to participate if they are employed by the Company or
an affiliate of the Company designated by the Board. Employees who participate
in an offering generally can have up to 10% of their earnings withheld
pursuant to the Purchase Plan and applied, on specified dates determined by
the Board, to the purchase of shares of Common Stock. The Board may increase
this percentage in its discretion, up to 15%. The price of Common Stock
purchased under the Purchase Plan will be equal to 85% of the lower of the
fair market value of the Common Stock on the commencement date of each
offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the
Company.
In the event of certain changes of control, the Board has discretion to
provide that each right to purchase Common Stock will be assumed or an
equivalent right substituted by the successor corporation, or the Board may
shorten the offering period and provide for all sums collected by payroll
deductions to be applied to purchase stock immediately prior to the change in
control. The Purchase Plan will terminate at the Board's direction or when all
of the shares reserved for issuance under the Purchase Plan have been issued.
401(K) PLAN
The Company maintains the NVIDIA Corporation 401(k) Retirement Plan (the
"401(k) Plan") for eligible employees ("Participants"). A Participant may
contribute up to 20% of his or her total annual compensation to the 401(k)
Plan, up to a statutorily prescribed annual limit. The annual limit for
calendar 1998 is $10,000. Each Participant is fully vested in his or her
deferred salary contributions. Participant contributions are held and invested
by the 401(k) Plan's trustee. The Company may make discretionary contributions
as a percentage of
58
<PAGE>
Participant contributions, subject to established limits. To date, the Company
has made no contributions to the 401(k) Plan on behalf of the Participants.
The 401(k) Plan is intended to qualify under Section 401 of the Code, so that
contributions by employees or by the Company to the 401(k) Plan, and income
earned on the 401(k) Plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan, and so that contributions by the Company, if
any, will be deductible by the Company when made.
59
<PAGE>
CERTAIN TRANSACTIONS
In August 1997, Harvey C. Jones, Jr., a director of the Company, purchased
24,334 shares of the Company's Series D Preferred Stock for an aggregate
purchase price of $127,997. The Company sold these securities pursuant to a
preferred stock purchase agreement and an investors' rights agreement on
substantially the same terms as the other investors of Series D Preferred
Stock, including registration rights, information rights and a right of first
refusal, among other provisions standard in venture capital financings.
Pursuant to an agreement between the Company and certain stockholders of the
Company, in August 1997, the Company granted certain rights with respect to
the registration of shares held by Messrs. Coxe, Jones and Miller, each of
whom is a director of the Company, and shares held by and Sequoia Capital VI
and its related entities and Sutter Hill Ventures and its related entities,
both of which are holders of more than 5% of the Company's Common Stock. Mr.
Stevens, a director of the Company, is a general partner of Sequoia Capital,
and Mr. Coxe is a general partner of Sutter Hill Ventures. See "Description of
Capital Stock--Registration Rights."
In July and August 1998, the Company's three largest customers, Creative,
Diamond, and STB, purchased an aggregate of $11.0 million of the Company's
convertible subordinated non-interest bearing notes.
INDEMNIFICATION AND LIMITATION OF DIRECTOR AND OFFICER LIABILITY
In February 1998, the Board authorized the Company to enter into indemnity
agreements with each of the Company's directors and executive officers. The
form of indemnity agreement provides that the Company will indemnify against
any and all expenses of the director or executive officer who incurred such
expenses because of his or her status as a director or executive officer, to
the fullest extent permitted by the Company's Bylaws and Delaware law.
The Company's Certificate of Incorporation (the "Certificate") and Bylaws
contain certain provisions relating to the limitation of liability and
indemnification of directors and officers. The Certificate provides that
directors of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for any breach of the directors' duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the director
derives any improper personal benefit. The Certificate also provides that if
the Delaware General Corporation Law is amended after the approval by the
Company's stockholders of the Certificate to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of the Company's directors shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law. The
foregoing provisions of the Certificate are not intended to limit the
liability of directors or officers for any violation of applicable federal
securities laws. In addition, as permitted by Section 145 of the Delaware
General Corporation Law, the Bylaws of the Company provide that (i) the
Company is required to indemnify its directors and executive officers to the
fullest extent permitted by the Delaware General Corporation Law, (ii) the
Company may, in its discretion, indemnify other officers, employees and agents
as set forth in the Delaware General Corporation Law, (iii) to the fullest
extent permitted by the Delaware General Corporation Law, the Company is
required to advance all expenses incurred by its directors and executive
officers in connection with a legal proceeding (subject to certain
exceptions), (iv) the rights conferred in the Bylaws are not exclusive, (v)
the Company is authorized to enter into indemnification agreements with its
directors, officers, employees and agents and (vi) the Company may not
retroactively amend the Bylaws provisions relating to indemnity.
60
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of November 30, 1998,
and as adjusted to reflect the sale of the shares of Common Stock offered
hereby by (i) each of the Company's Named Executive Officers, (ii) each of the
Company's directors, (iii) each holder of more than 5% of the Company's Common
Stock and (iv) all current directors and executive officers as a group. Except
as otherwise noted below, the address of each person listed below is c/o the
Company, 3535 Monroe Drive, Santa Clara, California 95051.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)
SHARES ------------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNERS OWNED(1) OFFERING OFFERING
- ----------------- ------------ ---------- ----------
<S> <C> <C> <C>
Entities associated with Sequoia
Capital VI(2)........................ 3,095,902 13.2% 10.8%
3000 Sand Hill Road
Suite 280, Building 4
Menlo Park, California 94025
Jen-Hsun Huang(3)(4).................. 3,000,000 12.8 10.5
Chris A. Malachowsky(3)(5)............ 3,000,000 12.8 10.5
Curtis R. Priem(3).................... 3,000,000 12.8 10.5
Entities associated with Sutter Hill
Ventures(6)(9)....................... 2,786,090 11.9 9.8
755 Page Mill Road, Suite A-200
Palo Alto, California 94304
Jeffrey D. Fisher(7).................. 359,800 1.5 1.3
Richard J. Whitacre(8)................ 182,800 * *
Tench Coxe(6)(9)...................... 2,786,090 12.1 9.8
Harvey C. Jones, Jr.(10).............. 269,334 1.1 *
William J. Miller(11)................. 181,844 * *
A. Brooke Seawell(12) ................ 42,497 * *
Mark A. Stevens(2)(13)................ 3,145,902 13.4 11.0
All current directors and executive
officers as a group(11 persons)(14).. 15,810,467 67.3 55.4
</TABLE>
- --------
*Less than 1%.
(1) Percentage of beneficial ownership is based on 23,493,797 shares of
Common Stock outstanding on an as-converted basis as of November 30, 1998
and on 28,565,226 shares of Common Stock outstanding after the completion
of this offering, including 1,571,429 shares issuable upon the mandatory
conversion of outstanding notes on January 15, 1999. Shares of Common
Stock subject to options currently exercisable or exercisable within 60
days of November 30, 1998 are deemed outstanding for the purpose of
computing the percentage ownership of the person holding such options but
are not deemed outstanding for computing the percentage ownership of any
other person. Unless otherwise indicated below, the persons and entities
named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property
laws where applicable.
(2) Includes (i) 2,566,589 shares held by Sequoia Capital VI, (ii) 258,947
shares held by Sequoia Capital Growth Fund, (iii) 141,021 shares held by
Sequoia Technology Partners VI, (iv) 81,237 shares held by Sequoia XXIII,
(v) 27,778 shares held by Sequoia XXIV, (vi) 16,528 shares held by
Sequoia Technology Partners III, (vii) 2,433 shares held by SQP 1997 and
(viii) 1,369 shares held by Sequoia 1997. Mr. Stevens, a director of the
Company, is a general partner of Sequoia Capital VI and a general partner
of Sequoia Technology Partners VI, and therefore may be deemed to
beneficially own the shares currently owned by such entities. Mr. Stevens
disclaims beneficial ownership of the shares held by such entities,
except to the extent of his pecuniary interest therein.
61
<PAGE>
(3) The address for Messrs. Huang, Malachowsky and Priem is: c/o NVIDIA
Corporation, 3535 Monroe Drive, Santa Clara, California 95051.
(4) Includes 2,308,900 shares held by The Jen-Hsun and Lori Huang Living
Trust dated May 1, 1995, of which Mr. Huang is the trustee and 250,600
shares held by J. and L. Huang Investments, L.P., of which Mr. Huang and
his wife are general partners. Also includes 220,000 shares held by Karen
Mills Gambee, as Trustee of The Jen-Hsun Huang and Lori Lynn Huang 1995
Irrevocable Children's Trust and 220,500 shares held by various family
members, as to which Mr. Huang does not have voting or dispositive power
or beneficial ownership thereof.
(5) Includes 2,052,000 shares held by The Chris and Melody Malachowsky Living
Trust dated October 20, 1994, of which Mr. Malachowsky is the trustee and
238,500 shares held by Malachowsky Investments L.P., of which Mr.
Malachowsky and his wife are general partners. Also includes 660,000
shares held by John M. Scott, as Trustee of The Chris Malachowsky and
Melody Malachowsky 1994 Irrevocable Trust and 49,500 shares held by
various family members, as to which Mr. Malachowsky does not have voting
or dispositive power thereof.
(6) Includes 1,813,275 shares held by Sutter Hill Ventures, a California
Limited Partnership ("Sutter Hill"). Mr. Coxe, a director of the Company,
shares voting and investing power with four other managing directors of
Sutter Hill Ventures LLC, the general partner of Sutter Hill. Includes
972,815 shares held of record by the five managing directors of Sutter
Hill Ventures LLC and their related family entities. Mr. Coxe disclaims
beneficial ownership of the shares held by the other persons and entities
associated with Sutter Hill, except to the extent of his pecuniary
interest therein.
(7) Includes 135,000 shares of Common Stock issuable upon the early exercise
of options vesting through May 2001.
(8) Includes 69,375 shares of Common Stock issuable upon exercise of vested
options within 60 days of November 30, 1998. Mr. Whitacre resigned as an
executive officer on October 1, 1998.
(9) Includes 50,000 shares subject to a right of repurchase that expires
ratably through July 2000.
(10) Includes 70,000 shares subject to a right of repurchase that expires
ratably through August 2000.
(11) Includes 50,000 shares subject to a right of repurchase that expires
ratably through June 2000.
(12) Includes 42,497 shares of Common Stock issuable upon exercise of vested
options within 60 days of November 30, 1998.
(13) Includes 50,000 shares subject to a right of repurchase that expires
ratably through July 2000.
(14) Includes shares issuable upon exercise of options held by all current
directors and executive officers within 60 days of November 30, 1998. See
footnotes (7) and (12).
62
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 200,000,000 shares of Common Stock, par value $.001
per share, and 2,000,000 shares of Preferred Stock, par value $.001 per share
("Preferred Stock").
COMMON STOCK
As of November 30, 1998, there were 23,493,797 shares of Common Stock
(including shares of Preferred Stock that will be converted into Common Stock
upon completion of this offering) outstanding held of record by 198
stockholders.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding shares of the Preferred
Stock, the holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation,
dissolution, or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preferences of any outstanding shares of Preferred Stock.
Holders of Common Stock have no preemptive rights and no right to convert
their Common Stock into any other securities. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are, and all shares of Common Stock to be outstanding upon the
completion of this offering will be, fully paid and non-assessable.
PREFERRED STOCK
Pursuant to the Restated Certificate the Board of Directors has the
authority, without further action by the stockholders, to issue up to
2,000,000 shares of Preferred Stock in one or more series and to fix the
designations, powers, preferences, privileges, and relative participating,
optional, or special rights and the qualifications, limitations, or
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences, any or all of which
may be greater than the rights of the Common Stock. The Board of Directors,
without stockholder approval, can issue Preferred Stock with voting,
conversion, or other rights that could adversely affect the voting power and
other rights of the holders of Common Stock. Preferred Stock could thus be
issued quickly with terms calculated to delay or prevent a change in control
of the Company or make removal of management more difficult. Additionally, the
issuance of Preferred Stock may have the effect of decreasing the market price
of the Common Stock, and may adversely affect the voting and other rights of
the holders of Common Stock. Upon the completion of this offering, there will
be no shares of Preferred Stock outstanding and the Company has no current
plans to issue any of the authorized Preferred Stock.
REGISTRATION RIGHTS
Pursuant to an agreement between the Company and the holders (or their
permitted transferees) ("Holders") of (i) approximately 9,327,087 shares of
Common Stock (assuming the conversion of all outstanding Preferred Stock upon
the completion of this offering), (ii) warrants to purchase 29,706 shares of
Common Stock, and (iii) notes convertible into 1,571,429 shares of Common
Stock upon the completion of this offering, the Holders are entitled to
certain rights with respect to the registration of such shares under the
Securities Act. If the Company proposes to register its Common Stock, subject
to certain exceptions, under the Securities Act, the Holders are entitled to
notice of the registration and are entitled at the Company's expense to
include such shares therein, provided that the managing underwriters have the
right to limit the number of such shares included in the registration. The
registration rights with respect to this offering have been waived. In
addition, certain of the Holders may require the Company, at its expense, on
no more than one occasion, to file a registration statement under the
Securities Act with respect to their shares of Common Stock. Such rights may
not be exercised until 60 days after the completion of this offering. Further,
certain Holders may require the Company, once every 12 months and, on no more
than two occasions, at the Company's expense to register the
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<PAGE>
shares on Form S-3 when such form becomes available to the Company, subject to
certain conditions and limitations. Such right expires on the fifth
anniversary of completion of this offering.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF CHARTER DOCUMENTS AND DELAWARE LAW
CHARTER DOCUMENTS
The Company's Certificate of Incorporation (the "Certificate") and Bylaws
include a number of provisions that may have the effect of deterring hostile
takeovers or delaying or preventing changes in control or management of the
Company. First, the Certificate provides that all stockholder action must be
effected at a duly called meeting of holders and not by a consent in writing.
Second, the Bylaws provide that special meetings of the holders may be called
only by (i) the Chairman of the Board of Directors, (ii) the Chief Executive
Officer, or (iii) the Board of Directors pursuant to a resolution adopted by
the Board of Directors. Third, the Certificate and the Bylaws provide for a
classified Board of Directors. The Certificate includes a provision requiring
cumulative voting for directors only if required by applicable California law.
Under cumulative voting, a minority stockholder holding a sufficient
percentage of a class of shares may be able to ensure the election of one or
more directors. As a result of the provisions of the Certificate and
applicable California and Delaware law, at any annual meeting whereby the
Company had at least 800 stockholders as of the end of the fiscal year prior
to the record date for such annual meeting, stockholders will not be able to
cumulate votes for directors. Finally, the Bylaws establish procedures,
including advance notice procedures with regard to the nomination of
candidates for election as directors and stockholder proposals. These
provisions of the Certificate and Bylaws could discourage potential
acquisition proposals and could delay or prevent a change in control or
management of the Company. Such provisions also may have the effect of
preventing changes in the management of the Company. See "Risk Factors--
Effects of Certain Charter and Bylaw Provisions" and "Management."
DELAWARE TAKEOVER STATUTE
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). In general, Section 203 prohibits a
publicly held Delaware corporation, such as the Company shall become upon the
completion of this offering from engaging in a "business combination" with a
person characterized as an "interested stockholder" for a period of three
years after the date of the transaction pursuant to which such person became
an interested stockholder, unless the business combination is approved in a
manner prescribed by Delaware law. For purposes of Section 203, a business
combination includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder, and an "interested
stockholder" is a person who, together with affiliates and associates, owns
(or within three years prior, did own) 15% or more of the Company's voting
stock.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C. has been appointed as the transfer
agent and registrar for the Company's Common Stock.
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices from time to
time. Furthermore, since only a limited number of shares will be available for
sale following this offering as a result of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after these restrictions
lapse could adversely affect the prevailing market price and the ability of
the Company to raise equity capital in the future.
Upon the completion of this offering, the Company will have outstanding an
aggregate of 28,565,226 shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options and
warrants. Of these shares, all of the shares sold in this offering will be
freely tradable without restrictions or further registration under the
Securities Act, unless such shares are purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act (the
"Affiliates"). The remaining 25,065,226 shares of Common Stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act ("Restricted Shares"). Restricted Shares may
be sold in the public market only if registered or if they qualify for an
exemption from registration pursuant to Rules 144, 144(k) or 701 promulgated
under the Securities Act, which are summarized below. All officers and
directors and certain stockholders holding an aggregate of 24,917,726 shares
of the Company's Common Stock have agreed, subject to certain exceptions, not
to offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly of
indirectly (or enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership
of), any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for shares of Common Stock, for a period of 180
days after the date of this Prospectus, without the prior written consent of
Morgan Stanley & Co. Incorporated. Morgan Stanley & Co. Incorporated may in
its sole discretion choose to release a certain number of these shares from
such restrictions prior to the expiration of such 180-day period.
Approximately 5,000,000 shares of Common Stock of the Company (less shares
available for sale within 90 days following the date of this Prospectus),
which does not include any shares held by officers and directors, will be
released from such contractual restrictions following 90 days after the date
of this Prospectus. As a result of such contractual restrictions and the
provisions of Rule 144 and 701, the Restricted Shares will be available for
sale in the public market as follows: (i) 147,500 shares will be eligible for
immediate sale on the date of this Prospectus; (ii) 4,852,500 shares will be
eligible for sale 90 days after the date of this Prospectus; (iii) 17,727,849
shares will be eligible for sale upon expiration of lock-up agreements 180
days after the date of this Prospectus and (iv) the remaining shares will be
eligible for sale from time to time thereafter upon expiration of the
Company's right to repurchase such shares.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an Affiliate) would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (i) 1% of the number of shares of Common Stock then
outstanding (which will equal approximately 285,652 shares immediately after
this offering); or (ii) the average weekly trading volume of the Common Stock
on the Nasdaq National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to such sale. Sales under Rule 144
are also subject to certain manner of sale provisions and notice requirements
and to the availability of current public information about the Company. Under
Rule 144(k), a person who is not deemed to have been an Affiliate of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an Affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144; therefore,
unless otherwise contractually restricted, shares which qualify as "144(k)
shares" on the date of this Prospectus may be sold immediately upon the
completion of this offering. Subject to certain limitations on the aggregate
offering price of a transaction and other conditions, employees, directors,
officers, consultants or advisors may rely on Rule 701 with respect to the
resale of securities originally
65
<PAGE>
purchased from the Company prior to the date the issuer becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), pursuant to written compensatory benefit plans or written
contracts relating to the compensation of such persons. In addition, the
Securities and Exchange Commission has indicated that Rule 701 will apply to
typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Exchange Act, along with the shares acquired
upon exercise of such options (including exercises after the date of this
Prospectus). Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this Prospectus, may be sold by persons
other than Affiliates subject only to the manner of sale provisions of Rule
144, and by Affiliates under Rule 144 without compliance with its holding
period requirements.
Upon completion of this offering, (i) the holders of approximately 9,327,087
shares of Common Stock currently outstanding or issuable upon conversion of
Preferred Stock and (ii) 1,571,429 shares of Common Stock issuable upon
conversion of the convertible notes, or their transferees, will be entitled to
certain rights with respect to the registration of such shares under the
Securities Act. See "Description of Capital Stock--Registration Rights."
Registration of such shares under the Securities Act would result in such
shares becoming freely tradable without restriction under the Securities Act
(except for share purchases by affiliates) immediately upon the effectiveness
of such registration.
The Company intends to file a registration statement under the Securities
Act covering 10,683,290 shares of Common Stock reserved or to be reserved for
issuance under the Equity Incentive Plan, the Purchase Plan and the Directors'
Plan. See "Management--Employee Benefit Plans." Such registration statement is
expected to be filed and become effective as soon as practicable after the
effective date of this offering. Accordingly, shares registered under such
registration statement will, subject to Rule 144 volume limitations applicable
to Affiliates, be available for sale in the open market, beginning 180 days
after the date of the Prospectus, unless such shares are subject to vesting
restrictions with the Company.
66
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement (the "Underwriting Agreement"), the Underwriters named below (the
"Underwriters"), for whom Morgan Stanley & Co. Incorporated, Hambrecht & Quist
LLC and Prudential Securities Incorporated are acting as representatives (the
"Representatives"), have agreed severally to purchase, and the Company has
agreed to sell to them, severally, the respective number of shares of Common
Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated.....................................
Hambrecht & Quist LLC.................................................
Prudential Securities Incorporated....................................
---------
Total............................................................. 3,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby (other than
those covered by the over-allotment option described below) if any such shares
are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the initial public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering price.
Any Underwriter may allow, and such dealers may reallow, a concession not in
excess of $ per share to other Underwriters or to certain dealers. After
the initial offering of the shares of Common Stock, the offering price and
other selling terms may from time to time be varied by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
525,000 additional shares of Common Stock at the initial public offering price
set forth on the cover page hereof, less underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose
of covering over-allotments, if any, made in connection with the offering of
the shares of Common Stock offered hereby. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Common Stock as the number set forth next to such Underwriter's name
in the preceding table bears to the total number of shares of Common Stock set
forth next to the names of all Underwriters in the preceding table.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
Each of the Company and the directors, executive officers, certain other
stockholders and option holders of the Company has agreed, subject to certain
exceptions that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, it will not during the period
ending 180 days after the date of this Prospectus (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer, lend or dispose
67
<PAGE>
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise, except under certain limited circumstances. The restrictions
described in this paragraph do not apply to (a) the sale of Shares to the
Underwriters, (b) the issuance by the Company of shares of Common Stock upon
exercise of an option or a warrant outstanding on the date of this Prospectus
and described as such in the Prospectus, (c) the issuance by the Company of
shares of Common Stock under the Equity Incentive Plan, the Directors' Plan
and the Purchase Plan or (d) transactions by any person other than the Company
relating to shares of Common Stock or other securities acquired in open market
transactions after the completion of the offering of the Shares. See "Shares
Eligible for Future Sale."
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Stock in the offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Common Stock
or any other securities of the Company. The initial public offering price for
the Common Stock will be determined by negotiations among the Company and the
Representatives. Among the factors to be considered in determining the initial
public offering price will be the future prospects of the Company and its
industry in general, sales, earnings and certain other financial and operating
information of the Company in recent periods, and the price-earnings ratios,
price-sales ratios, market prices of securities and certain financial and
operating information of companies engaged in activities similar to those of
the Company. The estimated initial public offering price range set forth on
the cover page of this Preliminary Prospectus is subject to change as a result
of market conditions and other factors.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Cooley Godward LLP ("Cooley Godward"), San Francisco, California.
Certain legal matters related to the offering will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. As of the date of this Prospectus, certain partners and
associates of Cooley Godward own through investment partnerships an aggregate
of 124,591 shares of Common Stock of the Company. James C. Gaither, a partner
of Cooley Godward, owns 44,289 shares of Common Stock of the Company and has
an option to purchase 50,000 shares of the Company's Common Stock.
68
<PAGE>
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1997,
January 31, 1998 and October 25, 1998 and for each of the years in the three-
year period ended December 31, 1997, the one-month period ended January 31,
1998, and the nine-month period ended October 25, 1998 have been included in
the Registration Statement in reliance upon the report of KPMG Peat Marwick
LLP, independent auditors, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such Common Stock, reference is
made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement may be inspected by anyone without charge at the Commission's
principal office in Washington, D.C., and copies of all or any part of the
Registration Statement may be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the Registration Statement may be obtained from such offices upon payment of
the fees prescribed by the Commission. The Commission maintains a World Wide
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission. The address of the site is http://www.sec.gov.
69
<PAGE>
NVIDIA CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors..................... F-2
Balance Sheets as of December 31, 1996 and 1997, January 31, 1998, and
October 25, 1998......................................................... F-3
Statements of Operations for the years ended December 31, 1995, 1996 and
1997, one month ended January 26, 1997 (unaudited), one month ended
January 31, 1998, nine months ended September 28, 1997 (unaudited), and
nine months ended October 25, 1998....................................... F-4
Statements of Stockholders' Equity for the years ended December 31, 1995,
1996 and 1997, one month ended January 31, 1998, and nine months ended
October 25, 1998......................................................... F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997, one month ended January 26, 1997 (unaudited), one month ended
January 31, 1998, nine months ended September 28, 1997 (unaudited), and
nine months ended October 25, 1998....................................... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
NVIDIA Corporation:
We have audited the accompanying balance sheets of NVIDIA Corporation (the
Company) as of December 31, 1996 and 1997, January 31, 1998, and October 25,
1998 and the related statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997,
the one-month period ended January 31, 1998, and the nine-month period ended
October 25, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NVIDIA Corporation as of
December 31, 1996 and 1997, January 31, 1998, and October 25, 1998 and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1997, the one-month period ended January
31, 1998, and the nine-month period ended October 25, 1998, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Mountain View, California
November 16, 1998
F-2
<PAGE>
NVIDIA CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JANUARY 31, OCTOBER 25,
1996 1997 1998 1998
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents....... $ 3,133 $ 6,551 $ 7,984 $ 12,461
Accounts receivable, less
allowances of $100, $349 and
$3,506, at December 31, 1997,
January 31, 1998 and October
25, 1998, respectively......... 1,041 12,487 15,399 35,918
Inventory....................... 63 25 521 17,193
Prepaid expenses and other
current assets................. 41 278 594 1,163
-------- -------- -------- --------
Total current assets........ 4,278 19,341 24,498 66,735
Property and equipment, net....... 1,144 5,536 5,512 9,218
Deposits and other assets......... 103 162 162 549
-------- -------- -------- --------
$ 5,525 $ 25,039 $ 30,172 $ 76,502
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
-----------------------------
Current liabilities:
Accounts payable................ $ 277 $ 11,572 $ 15,312 $ 46,370
Line of credit.................. -- -- -- 5,000
Accrued liabilities............. 2,872 3,245 3,266 2,963
Current portion of capital lease
obligations.................... 722 1,434 1,228 1,843
-------- -------- -------- --------
Total current liabilities... 3,871 16,251 19,806 56,176
Capital lease obligations, less
current portion.................. 617 1,891 1,756 2,032
Commitments and contingencies
Stockholders' equity:
Mandatorily convertible notes... -- -- -- 11,000
Convertible preferred stock,
$.001 par value; 10,000,000
shares authorized; 7,888,275
and 9,327,087 shares issued and
outstanding in 1996, 1997,
January 31, 1998 and October
25, 1998; aggregate liquidation
preference of $19,827 in 1997,
January 31, 1998, and October
25, 1998....................... 8 9 9 9
Common stock, $.001 par value;
200,000,000 shares authorized;
11,567,374, 14,140,585,
14,141,710 and 14,166,710
shares issued and outstanding
in 1996, 1997, January 31, 1998
and October 25, 1998,
respectively................... 12 14 14 14
Additional paid-in capital...... 12,317 25,079 25,446 25,471
Deferred compensation........... -- (3,316) (3,317) (1,126)
Accumulated deficit............. (11,300) (14,889) (13,542) (17,074)
-------- -------- -------- --------
Total stockholders' equity.. 1,037 6,897 8,610 18,294
-------- -------- -------- --------
$ 5,525 $ 25,039 $ 30,172 $ 76,502
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
NVIDIA CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, ONE MONTH ENDED NINE MONTHS ENDED
------------------------- ----------------------- -------------------------
JANUARY 26, JANUARY 31, SEPTEMBER 28, OCTOBER 25,
1995 1996 1997 1997 1998 1997 1998
------- ------- ------- ----------- ----------- ------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product............... $ 1,103 $ 3,710 $27,280 $ 190 $11,420 $ 5,225 $86,755
Royalty............... 79 202 1,791 -- 1,911 312 5,945
------- ------- ------- ------ ------- ------- -------
Total revenue....... 1,182 3,912 29,071 190 13,331 5,537 92,700
Cost of revenue......... 1,549 3,038 21,244 127 10,071 4,906 67,400
------- ------- ------- ------ ------- ------- -------
Gross profit (loss)..... (367) 874 7,827 63 3,260 631 25,300
------- ------- ------- ------ ------- ------- -------
Operating expenses:
Research and
development.......... 2,426 1,218 7,103 415 1,121 3,518 16,656
Sales, general and
administrative....... 3,677 2,649 4,183 164 640 2,024 12,544
------- ------- ------- ------ ------- ------- -------
Total operating
expenses........... 6,103 3,867 11,286 579 1,761 5,542 29,200
------- ------- ------- ------ ------- ------- -------
Operating income
(loss)............. (6,470) (2,993) (3,459) (516) 1,499 (4,911) (3,900)
Interest and other
income (expense), net.. 93 (84) (130) (6) (18) (102) 60
------- ------- ------- ------ ------- ------- -------
Income (loss) before tax
expense (benefit)...... (6,377) (3,077) (3,589) (522) 1,481 (5,013) (3,840)
Income tax expense...... -- -- -- -- 134 -- (308)
------- ------- ------- ------ ------- ------- -------
Net income (loss)... (6,377) (3,077) (3,589) $(522) $ 1,347 $(5,013) $(3,532)
======= ======= ======= ====== ======= ======= =======
Basic net income (loss)
per share.............. $ (.56) $ (.27) $ (.28) $ (.05) $ .10 $ (.41) $ (.25)
======= ======= ======= ====== ======= ======= =======
Diluted net income
(loss) per share....... $ (.56) $ (.27) $ (.28) $ (.05) $ .05 $ (.41) $ (.25)
======= ======= ======= ====== ======= ======= =======
Shares used in basic per
share computation...... 11,365 11,383 12,677 11,567 14,141 12,123 14,152
Shares used in diluted
per share computation.. 11,365 11,383 12,677 11,567 26,100 12,123 14,152
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
NVIDIA CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
MANDATORILY PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED ACCUMU- STOCK-
CONVERTIBLE ---------------- ----------------- PAID-IN COMPEN- LATED HOLDERS'
NOTES SHARES AMOUNT SHARES AMOUNT CAPITAL SATION DEFICIT EQUITY
----------- --------- ------ ---------- ------ ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1994................... $ -- 6,693,831 $ 7 11,365,300 $11 $ 6,456 $ -- $ (1,846) $ 4,628
Issuance of Series B
preferred stock........ -- 416,667 -- -- -- 750 -- -- 750
Exercise of Series B
warrants............... -- 13,888 -- -- -- 25 -- -- 25
Issuance of Series C
preferred stock, net of
issuance costs of $14.. -- 750,000 1 -- -- 4,985 -- -- 4,986
Net loss................ -- -- -- -- -- -- -- (6,377) (6,377)
------- --------- --- ---------- --- ------- ------- -------- -------
Balances, December 31,
1995................... -- 7,874,386 8 11,365,300 11 12,216 -- (8,223) 4,012
Exercise of Series B
warrants............... -- 13,889 -- -- -- 25 -- -- 25
Issuance of common stock
and stock options for
services............... -- -- -- 2,200 -- 25 -- -- 25
Issuance of common stock
upon exercise of stock
options................ -- -- -- 199,874 1 51 -- -- 52
Net loss................ -- -- -- -- -- -- -- (3,077) (3,077)
------- --------- --- ---------- --- ------- ------- -------- -------
Balances, December 31,
1996................... -- 7,888,275 8 11,567,374 12 12,317 -- (11,300) 1,037
Issuance of Series D
preferred stock, net of
issuance costs of $30.. -- 1,438,812 1 -- -- 7,537 -- -- 7,538
Grant of common stock
options for lease
financing and
consulting services.... -- -- -- -- -- 120 -- -- 120
Issuance of common stock
upon exercise of stock
options................ -- -- -- 2,573,211 2 828 -- -- 830
Deferred compensation
related to grant of
common stock options... -- -- -- -- -- 4,277 (4,277) -- --
Amortization of deferred
compensation........... -- -- -- -- -- -- 961 -- 961
Net loss................ -- -- -- -- -- -- -- (3,589) (3,589)
------- --------- --- ---------- --- ------- ------- -------- -------
Balances, December 31,
1997................... -- 9,327,087 9 14,140,585 14 25,079 (3,316) (14,889) 6,897
Exercise of common
stock.................. -- -- -- 1,125 -- 6 -- -- 6
Deferred compensation
related to grant of
common stock options... -- -- -- -- -- 361 (361) -- --
Amortization of deferred
compensation........... -- -- -- -- -- -- 360 -- 360
Net income.............. -- -- -- -- -- -- -- 1,347 1,347
------- --------- --- ---------- --- ------- ------- -------- -------
Balances, January 31,
1998 .................. -- 9,327,087 9 14,141,710 14 25,446 (3,317) (13,542) 8,610
Exercise of common
stock.................. -- -- -- 25,000 -- 25 -- -- 25
Issuance of mandatorily
convertible notes...... 11,000 -- -- -- -- -- -- -- 11,000
Amortization of deferred
compensation........... -- -- -- -- -- -- 2,191 -- 2,191
Net loss................ -- -- -- -- -- -- -- (3,532) (3,532)
------- --------- --- ---------- --- ------- ------- -------- -------
Balances, October 25,
1998................... $11,000 9,327,087 $ 9 14,166,710 $14 $25,471 $(1,126) $(17,074) $18,294
======= ========= === ========== === ======= ======= ======== =======
</TABLE>
- --------
See accompanying notes to financial statements.
F-5
<PAGE>
NVIDIA CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, ONE MONTH ENDED NINE MONTHS ENDED
-------------------------- ----------------------- -------------------------
JANUARY 28, JANUARY 31, SEPTEMBER 28, OCTOBER 25,
1995 1996 1997 1997 1998 1997 1998
------- ------- -------- ----------- ----------- ------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)...... $(6,377) $(3,077) $ (3,589) $(1,177) $ 1,347 $(5,014) $ (3,532)
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization.......... 524 802 1,363 144 219 598 2,796
Stock options granted
in exchange for lease
financing and
services.............. 25 50 120 -- -- -- --
Amortization of
deferred compensation. -- -- 961 -- 360 159 2,191
Changes in operating
assets and
liabilities:
Accounts receivable... (458) (24) (11,446) (1,067) (2,912) (4,463) (20,519)
Inventory............. -- -- 38 63 (496) 60 (16,672)
Prepaid expenses and
other current assets. (592) 44 (237) (104) (316) (245) (569)
Deposits and other
assets............... (65) (19) (59) -- -- (35) (387)
Accounts payable...... 510 (506) 11,295 (436) 3,740 4,045 31,058
Accrued liabilities... 300 2,451 373 1,552 21 726 (303)
------- ------- -------- ------- ------- ------- --------
Net cash provided by
(used in) operating
activities.......... (6,133) (279) (1,181) (1,025) 1,963 (4,169) (5,937)
------- ------- -------- ------- ------- ------- --------
Cash flows used in
investing activities--
purchases of property
and equipment.......... (5) (9) (2,732) 2 (163) (1,721) (4,305)
------- ------- -------- ------- ------- ------- --------
Cash flows from
financing activities:
Borrowings under line
of credit............. -- -- -- -- -- -- 5,000
Issuance of mandatorily
convertible notes..... -- -- -- -- -- -- 11,000
Net proceeds from sale
of common stock....... -- 51 830 6 6 744 25
Net proceeds from sale
of preferred stock.... 5,762 -- 7,538 -- -- 7,538 --
Payments under capital
leases................ (307) (502) (1,037) (182) (373) (55) (1,306)
------- ------- -------- ------- ------- ------- --------
Net cash provided by
(used in) financing
activities.......... 5,455 (451) 7,331 (176) (367) 8,227 14,719
------- ------- -------- ------- ------- ------- --------
Change in cash and cash
equivalents............ (683) (739) 3,418 (1,199) 1,433 2,337 4,477
Cash and cash
equivalents at
beginning of period.... 4,555 3,872 3,133 3,133 6,551 3,133 7,984
------- ------- -------- ------- ------- ------- --------
Cash and cash
equivalents at end of
period................. $ 3,872 $ 3,133 $ 6,551 $ 1,934 $ 7,984 $ 5,470 $ 12,461
======= ======= ======== ======= ======= ======= ========
Cash paid for interest.. $ 152 $ 215 $ 267 $ 16 $ 31 $ 194 $ 390
======= ======= ======== ======= ======= ======= ========
Noncash financing and
investing activity--
Assets recorded under
capital lease.......... $ 1,430 $ 265 $ 3,023 $ 516 $ 32 $ 1,306 $ 2,197
======= ======= ======== ======= ======= ======= ========
Deferred compensation
related to grant of
common stock options.. -- -- $ 4,277 -- $ 361 $ 1,525 --
======= ======= ======== ======= ======= ======= ========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED AS TO JANUARY 26, 1997 AND SEPTEMBER 28, 1997 DATA)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
NVIDIA Corporation (the "Company") designs, develops and markets 3D
interactive graphics processors for the mainstream PC market. The Company
operates primarily in one business segment in the United States. In April
1998, the Company was reincorporated as a Delaware corporation.
Interim Financial Information
The financial information presented as of and for the one month ended
January 26, 1997 and the nine months ended September 28, 1997 is unaudited. In
the opinion of management, this unaudited financial information contains all
adjustments (which consist only of normal, recurring adjustments) necessary
for a fair presentation. Operating results for the nine months ended October
25, 1998 are not necessarily indicative of results that may be expected for
the full year.
Fiscal Year
Effective January 1, 1998, the Company changed its fiscal year-end financial
reporting period to January 31. The Company elected not to restate its
previous reporting periods ending December 31. In addition, effective February
1, 1998 the Company changed its fiscal year end from January 31 to a 52- or
53-week year ending on the last Sunday in January. As a result, the first and
fourth quarters of fiscal 1999 are 12- and 14-week periods, respectively, with
the remaining quarters being 13-week periods.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less at the time of purchase to be cash
equivalents.
Inventories
Inventories are stated at the lower of first-in first-out, cost or market.
Write-downs to reduce the carrying value of obsolete, slow moving and non-
usable inventory to net realizable value are charged to operations.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on estimated useful lives, generally three to
four years. Depreciation expense includes the amortization of assets recorded
under capital leases. Leasehold improvements and assets recorded under capital
leases are amortized over the shorter of the lease term or the estimated
useful life of the asset.
Software Development Costs
Software development costs are expensed as incurred until the technological
feasibility of the related product has been established. After technological
feasibility is established, any additional software development costs would be
capitalized in accordance with Financial Accounting Standards Board Statement
of Financial Accounting Standards ("SFAS") No. 86, Capitalization of Software
Development Costs. Through October 25,
F-7
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO JANUARY 26, 1997 AND SEPTEMBER 28, 1997 DATA)
1998, the Company's process for developing software was essentially completed
concurrently with the establishment of technological feasibility, and,
accordingly, no software costs have been capitalized to date. Software
development costs incurred prior to achieving technological feasibility are
charged to research and development expense as incurred.
Revenue Recognition
Revenue from product sales is recognized upon shipment, net of an allowance
for anticipated returns. While the Company has not yet sold products through
distributors, the Company's policy on sales to distributors will be to defer
recognition of sales and related gross profit until the distributors resell
the product. Royalty revenue is recognized upon shipment of product by the
licensee to its customers. The Company believes that the software sold with
its products is incidental to the product as a whole.
Research and Development Arrangements
The Company enters into contractual agreements to provide design,
development and support services on a best efforts basis. All amounts funded
to the Company under these agreements are non-refundable once paid. The
Company recorded reductions to research and development expense after the
services were performed based on the achievement of contractually specified
milestones and the collectability of amounts was assured.
Accounting for Stock-Based Compensation
The Company uses the intrinsic value method to account for its stock-based
employee compensation plans. Deferred compensation arising from stock-based
awards is amortized in accordance with Financial Accounting Standards Board
Interpretation No. 28.
Income Taxes
The Company records income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are expected
to be recorded or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income
(loss) per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding during the period, using either
the as-if-converted method for mandatorily convertible notes and convertible
preferred stock or the treasury stock method for options and warrants. The
effect of including mandatorily convertible notes, convertible preferred
stock, options and warrants would have been antidilutive during all periods
presented, except for the one-month period ended January 31, 1998, and, as a
result, such effect has been excluded from the computation of diluted net loss
per share during those anti-dilutive periods. See Note 3 for information
regarding potentially dilutive outstanding shares of, and warrants to purchase
common stock, convertible preferred stock and outstanding options to purchase
common stock. Pursuant to SEC Staff Accounting Bulletin No. 98, common stock
and convertible preferred stock issued for nominal consideration and options
and warrants granted for nominal consideration prior to the anticipated
effective date of the initial public offering (IPO) are included in the
calculation of basic
F-8
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO JANUARY 26, 1997 AND SEPTEMBER 28, 1997 DATA)
and diluted net income (loss) per share, as if they were outstanding for all
periods presented. To date, the Company has not had any issuances or grants for
nominal consideration. The following is a reconciliation of the numerators and
denominators of the basic and diluted earnings per share (EPS) computations for
the periods presented:
<TABLE>
<CAPTION>
PER
INCOME/(LOSS) SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Basic and diluted EPS...................... $(6,377) 11,365 $(0.56)
======= ====== ======
YEAR ENDED DECEMBER 31, 1996
Basic and diluted EPS...................... $(3,077) 11,383 $(0.27)
======= ====== ======
YEAR ENDED DECEMBER 31, 1997
Basic and diluted EPS...................... $(3,589) 12,677 $(0.28)
======= ====== ======
ONE MONTH ENDED JANUARY 28, 1997
Basic and diluted EPS...................... $ (522) 11,567 $(0.05)
======= ====== ======
ONE MONTH ENDED JANUARY 26, 1998
Basic EPS.................................. $ 1,347 14,141 $ 0.10
Effect of dilutive securities:
Stock options outstanding................ 2,531
Warrants................................. 101
Convertible preferred stock.............. 9,327
------- ------
Diluted EPS................................ $ 1,347 26,100 $ 0.05
======= ====== ======
NINE MONTHS ENDED SEPTEMBER 28, 1997
Basic and diluted EPS...................... $(5,013) 12,123 $(0.41)
======= ====== ======
NINE MONTHS ENDED OCTOBER 25, 1998
Basic and diluted EPS...................... $(3,532) 14,152 $ (.25)
======= ====== ======
</TABLE>
As of October 25, 1998, there were 7,455,458 options to acquire shares of
common stock with a weighted-average exercise price of $4.46, 9,327,087 shares
of convertible preferred stock, $11,000,000 convertible notes with an
conversion price equal to 90% of the initial public offering price or $7.00 per
share (See note 3) that could potentially dilute basic earnings per share in
the future but which were not included in diluted earnings per share for the
nine months ended October 25, 1998 as the effect was anti-dilutive in the
period. In addition, the Company has undertaken to issue warrants to acquire
300,000 shares of Common Stock at a per share exercise price equal to the
initial public offering price.
Fair Value of Financial Instruments
The carrying value of cash, cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate fair value due to the short
maturity of those instruments.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the recorded amounts of assets and liabilities and
F-9
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO JANUARY 26, 1997 AND SEPTEMBER 28, 1997 DATA)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(2) BALANCE SHEET COMPONENTS
Certain balance sheet components are as follows:
Inventory
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31, OCTOBER 25,
1997 1998 1998
------------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Work in-process....................... $-- $ -- $15,679
Finished goods........................ 25 521 1,514
--- ---- -------
Total inventory..................... $25 $521 $17,193
=== ==== =======
</TABLE>
At October 25, 1998, the Company had noncancelable inventory purchase
commitments totaling $48 million.
Property and Equipment
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JANUARY 31, OCTOBER 25,
1996 1997 1998 1998
------- ------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Purchased engineering software.. $ -- $ 3,158 $3,181 $3,482
Test equipment.................. 187 1,467 1,478 3,221
Computer equipment.............. 2,209 3,264 3,402 7,191
Leasehold improvements.......... 69 74 74 403
Office furniture and equipment.. 159 259 272 668
Assets held for lease........... -- 157 166 --
------- ------- ------ ------
2,624 8,379 8,573 14,965
Accumulated depreciation and
amortization................... (1,480) (2,843) (3,061) (5,747)
------- ------- ------ ------
Property and equipment, net... $ 1,144 $ 5,536 $5,512 $9,218
======= ======= ====== ======
</TABLE>
Assets recorded under capital leases included in property and equipment were
$2,314,000, $4,765,000, $5,215,000 and $6,744,000 as of December 31, 1996 and
1997, January 31, 1998 and October 25, 1998, respectively. Accumulated
amortization thereon was $1,233,000, $2,137,000 $2,265,000 and $3,868,000 as of
December 31, 1996 and 1997, January 31, 1998 and October 25, 1998,
respectively.
Accrued Liabilities
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JANUARY 31, OCTOBER 25,
1996 1997 1998 1998
------ ------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Advances on development agreement... $2,500 $2,500 $2,292 $ 417
Other............................... 372 745 974 2,546
------ ------ ------ ------
$2,872 $3,245 $3,266 $2,963
====== ====== ====== ======
</TABLE>
F-10
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO JANUARY 26, 1997 AND SEPTEMBER 28, 1997 DATA)
(3) STOCKHOLDERS' EQUITY
Mandatorily Convertible Notes
Convertible subordinated non-interest bearing notes were issued to three
major customers in July and August 1998 for a total of $11.0 million. The
notes are subordinated to certain senior indebtedness. In the event that the
Company issues and sells shares of its common stock in a firm commitment
underwritten initial public offering pursuant to an effective registration
statement yielding gross proceeds to the Company of at least $10.0 million
prior to December 31, 1998, then upon the closing of such initial public
offering the outstanding principal balance of the note automatically converts
to common stock of the Company at a conversion price equal to 90% of the price
at which the common stock is sold to the public. In the event that a
qualifying initial public offering is not completed by December 31, 1998,
then, on January 15, 1999, the outstanding principal balance of these notes
automatically converts into common stock of the Company at a conversion price
equal to $7.00 per share of common stock. In the event of a merger,
consolidation, acquisition or similar corporate event prior to January 15,
1999 whereby greater than 50% of the voting securities of the Company becomes
acquired by a third party, then the outstanding principal automatically
converts into common stock of the Company at a conversion price equal to 90%
of the price at which the common stock (on an as-converted basis) is acquired
by such third party.
Convertible Preferred Stock
In 1993, the Company sold 4,303,000 shares of Series A preferred stock at
$0.50 per share, net of $22,000 of issuance costs. In 1994, the Company sold
2,390,831 shares of Series B preferred stock at $1.80 per share, net of
$57,000 of issuance costs. In 1995, the Company sold 416,667 shares of Series
B preferred stock at $1.80 per share. In 1995, the Company sold 750,000 shares
of Series C preferred stock at $6.67 per share, net of $14,000 of issuance
costs. On August 19 and September 12, 1997, the Company sold an aggregate of
1,438,812 shares of Series D preferred stock at $5.26 per share, net of
$30,000 of issuance costs.
The rights, preferences, and privileges of the holders of Series A, B, C and
D convertible preferred stock are as follows:
. Dividends are noncumulative and payable only upon declaration by the
Board of Directors at a rate of $.04, $.144, $.533 and $.42 per share
for Series A, B, C and D preferred stock, respectively.
. Holders of Series A, B, C and D preferred stock have a liquidation
preference of $.50, $1.80, $6.67, and $5.26 per share, respectively,
plus any declared but unpaid dividends over holders of common stock.
. Each holder of preferred stock has voting rights equal to common stock
on an "as-if-converted" basis.
. Each share of preferred stock may be converted into common stock at the
option of the holder on a one-for-one basis, subject to adjustment to
protect against dilution. Automatic conversion will occur upon the
earlier of a vote of holders of at least two-thirds of the shares of
preferred stock then outstanding or upon the closing of an initial
public offering of common stock in which the aggregate proceeds exceed
$15,000,000 and the offering price equals or exceeds $10.00 per share.
Warrants
During the period 1993 through 1997, the Company granted warrants to
purchase 80,000; 66,877; 10,000 and 29,706 shares of Series A, B, C and D
preferred stock, respectively, in connection with lease financing and
services. These warrants are exercisable at $.50, $1.80, $6.67 and $5.26 for
shares of Series A, B, C and D
F-11
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO JANUARY 26, 1997 AND SEPTEMBER 28, 1997 DATA)
preferred stock, respectively, and expire from 2003 to 2007. At October 25,
1998, warrants to purchase 80,000, 39,100, 10,000 and 29,706 shares of Series
A, B, C and D preferred stock, respectively, were outstanding.
In October 1998, in connection with a manufacturing agreement, the Company
undertook to grant warrants to purchase 300,000 shares of common stock at an
exercise price per share equal to the initial public offering price.
The fair value of all warrant issuances calculated using the Black-Scholes
option pricing model was not material, using the following assumptions:
dividend yield - none; expected life - contractual term; risk free interest
rates - 6.0% to 6.5%; volatility - 60%.
1998 Equity Incentive Plan
The Equity Incentive Plan (the "Plan"), as amended and restated on February
17, 1998, provides for the issuance of up to 15,000,000 shares of the
Company's common stock to directors, employees and consultants. The Plan
provides for the issuance of stock bonuses, restricted stock purchase rights,
incentive stock options or nonstatutory stock options. Each year on the last
day of each fiscal year, starting with the year ending January 31, 1999, the
aggregate number of shares of Common Stock that are available for issuance
will automatically be increased by a number of shares equal to five percent
(5%) of the Company's outstanding Common Stock on such date, including on an
as-if-converted basis Preferred Stock and convertible notes, and outstanding
options and warrants, calculated using the treasury stock method.
Pursuant to the Plan, the exercise price for incentive stock options is at
least 100% of the fair market value on the date of grant or for employees
owning in excess of 10% of the voting power of all classes of stock, 110% of
the fair market value on the date of grant. For nonstatutory stock options,
the exercise price is no less than 85% of the fair market value on the date of
grant.
Options generally expire in 10 years. Vesting periods are determined by the
Board of Directors; however, options generally vest ratably over four years
beginning one year after the date of grant. Options may be exercised prior to
full vesting. Any unvested shares so purchased are subject to a repurchase
right in favor of the Company with the repurchase price to be equal to the
original purchase price of the stock. The right to repurchase at the original
price shall lapse at a minimum rate of 20% per year over five years from the
date the option was granted. As of October 25, 1998, there were 1,123,734 such
shares subject to repurchase.
The Company accounts for the plan using the intrinsic value method. As such,
compensation expense is recorded if on the date of grant the current fair
value per share of the underlying stock exceeds the exercise price per share.
With respect to certain options granted during 1997, the one month ended
January 31, 1998, and the nine months ended October 25, 1998, the Company has
recorded deferred compensation of $4,277,000, $361,000, and $0, respectively,
for the difference at the grant date between the exercise price per share and
the fair value per share, based upon independent valuations and management's
estimate of the fair value of the Company's stock on the various grant dates
of the common stock underlying the options. This amount is being amortized
over the vesting period of the individual options, generally four years.
Non-Employee Directors' Stock Option Plan
In February 1998, the Board adopted the 1998 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of Common Stock to non-employee directors of the
Company who are not employees of or consultants to the Company or an affiliate
of the Company (a "Non-Employee Director"). The Compensation Committee
administers the Directors' Plan. The aggregate number of shares of Common
Stock that may be issued pursuant to options granted under the Directors' Plan
is 300,000 shares.
F-12
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO JANUARY 26, 1997 AND SEPTEMBER 28, 1997 DATA)
Had compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS No. 123, the Company's net loss would have
increased and net income would have decreased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
ONE NINE
MONTH MONTHS
ENDED ENDED
JANUARY 31, OCTOBER 25,
1995 1996 1997 1998 1998
------- ------- ------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net loss as reported........ $(6,377) $(3,077) $(3,589) $1,347 $(3,532)
Additional stock-based
compensation under SFAS
No. 123.................... (12) (32) (105) (301) (3,011)
------- ------- ------- ------ -------
Pro forma net loss under
SFAS No. 123............... $(6,389) $(3,109) $(3,694) $1,046 $(6,543)
======= ======= ======= ====== =======
Pro forma basic net loss per
share as reported.......... $ (0.56) $ (0.27) $ (0.28) $ 0.10 $ (0.25)
======= ======= ======= ====== =======
Pro forma basic net loss per
share under SFAS No. 123... $ (0.56) $ (0.27) $ (0.29) $ 0.07 $ (0.46)
======= ======= ======= ====== =======
Pro forma diluted net loss
per share as reported...... $ (0.56) $ (0.27) $ (0.28) $ 0.05 $ (0.25)
======= ======= ======= ====== =======
Pro forma diluted net loss
per share under SFAS
No. 123.................... $ (0.56) $ (0.27) $ (0.29) $ 0.04 $ (0.46)
======= ======= ======= ====== =======
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following weighted-average assumptions: no
dividend yield; risk free interest rate of 5.0% to 6.5%; and expected life for
the option of five years.
The weighted-average fair value of options granted during the years ended
1995, 1996, 1997, the one month ended January 31, 1998 and the nine months
ended October 25, 1998 was approximately $.05, $.08, $1.43, $1.74 and $1.41,
respectively.
F-13
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO JANUARY 26, 1997 AND SEPTEMBER 28, 1997 DATA)
The following summarizes the transactions under the equity incentive and
non-employee director plans:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
AVAILABLE SHARES UNDER PRICE PER
FOR GRANT OPTION SHARE
---------- ------------ ---------
<S> <C> <C> <C>
Balances, December 31, 1995............. 260,700 1,695,875 $0.16
Authorized............................ 4,000,000 -- --
Granted............................... (1,755,935) 1,755,935 0.31
Exercised............................. -- (409,781) 0.20
Cancelled............................. 1,001,841 (866,009) 0.17
---------- ----------
Balances, December 31, 1996............. 3,506,606 2,176,020 0.27
Authorized............................ 2,000,000 -- --
Granted............................... (4,950,857) 5,000,857 1.43
Exercised............................. -- (2,603,836) 0.32
Cancelled............................. 868,208 (837,583) 0.29
---------- ----------
Balances, December 31, 1997............. 1,423,957 3,735,458 1.78
Authorized............................ -- -- --
Granted............................... (605,000) 605,000 5.01
Exercised............................. -- (1,125) 3.15
Cancelled............................. -- -- --
---------- ----------
Balances, January 31, 1998.............. 818,957 4,339,333 2.23
Authorized............................ 5,100,000 -- --
Granted............................... (4,761,750) 4,781,750 7.12
Exercised............................. -- (25,000) 1.08
Cancelled............................. 1,640,625 (1,640,625) 6.36
---------- ----------
Balances, October 25, 1998.............. 2,797,832 7,455,458 4.46
========== ==========
</TABLE>
In July 1998, the Board of Directors adopted a resolution allowing employees
to exchange some or all of their existing unvested options to purchase common
stock of the Company for options having an exercise price of $6.30 per share.
The repriced options retain the same vesting schedule as the originally issued
options, but the repriced options will not become exercisable until July 1999.
Options to purchase approximately 1,253,500 shares of common stock were
repriced under this program. Stock options held by executive officers and
directors were not eligible for such repricing.
During 1997, the Company granted Common Stock options within the Plan to
consultants for services rendered. The fair value of all option grants to non-
employees calculated using the Black-Scholes option pricing model was
$120,000, using the following assumptions: dividend yield--none; expected life
contractual term; risk free interest rates--6.0% to 6.5%; volatility--60%.
In 1997, options to purchase 50,000 shares of Common Stock were granted to
an outside investor during the Series D preferred stock offering. In 1998,
options to purchase 20,000 shares of common stock were granted to an outside
investor.
F-14
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO JANUARY 26, 1997 AND SEPTEMBER 28, 1997 DATA)
The following table summarizes information about stock options outstanding
as of October 25, 1998:
<TABLE>
<CAPTION>
OUTSTANDING
---------------------
WEIGHTED-
AVERAGE
REMAINING NUMBER
EXERCISE NUMBER CONTRACTUAL OF SHARES
PRICES OF SHARES LIFE EXERCISABLE
-------- --------- ----------- -----------
<S> <C> <C> <C>
$0.05.................................... 3,000 5.26 3,000
0.18.................................... 45,000 6.34 39,375
0.36.................................... 899,208 8.24 342,276
1.30.................................... 740,500 8.88 170,251
2.64.................................... 1,155,500 9.09 25,001
3.15.................................... 425,000 9.16 12,500
4.15.................................... 155,000 9.19 --
5.50.................................... 200,000 9.24 --
6.30.................................... 2,483,500 9.72 --
6.65.................................... 950,000 9.27 --
7.70.................................... 240,000 9.31 --
8.85.................................... 65,000 9.35 --
9.00.................................... 93,750 9.43 --
--------- -------
$0.05 - $9.00............................ 7,455,458 9.20 592,403
========= =======
</TABLE>
Employee Stock Purchase Plan
In February 1998, the Board approved the 1998 Employee Stock Purchase Plan
(the "Purchase Plan"), covering an aggregate of 500,000 shares of Common
Stock. The Purchase Plan is intended to qualify as an "employee stock purchase
plan" within the meaning of Section 423 of the Code. Under the Purchase Plan,
the Board may authorize participation by eligible employees, including
officers, in periodic offerings following the adoption of the Purchase Plan.
Under the Purchase Plan, the offering period for any offering will be no
longer than 27 months. Under the plan offering adopted pursuant to the
Purchase Plan, each offering period has been set at six months.
Employees are eligible to participate if they are employed by the Company or
an affiliate of the Company designated by the Board. Employees who participate
in an offering generally can have up to 10% of their earnings withheld
pursuant to the Purchase Plan and applied, on specified dates determined by
the Board, to the purchase of shares of Common Stock. The Board may increase
this percentage in its discretion, up to 15%. The price of Common Stock
purchased under the Purchase Plan will be equal to 85% of the lower of the
fair market value of the Common Stock on the commencement date of each
offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the
Company.
F-15
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO JANUARY 26, 1997 AND SEPTEMBER 28, 1997 DATA)
(4) FINANCIAL ARRANGEMENTS, COMMITMENTS AND CONTINGENCIES
Short-term Borrowings
In September 1998, the Company entered into a loan and security agreement
with a bank which includes a $5.0 million revolving credit facility with a
borrowing base equal to 75% of eligible accounts. The line of credit has a
non-refundable facility fee equal to $10,000 due on the closing date.
Borrowings under the line of credit carry interest at prime rate plus 1% and
are due in March 1999. As of October 25, 1998, the Company had borrowed $5.0
million against the line of credit. The weighted average interest rate for the
period the loan was outstanding was 9%. Outstanding balances are
collateralized primarily with equipment, intellectual property, accounts
receivable, and inventory.
Lease Obligations
In July 1998, the Company entered into a noncancelable operating lease for
its facilities that extends through 2002. Future minimum lease payments under
the Company's noncancelable capital and operating leases as of October 25,
1998, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JANUARY OPERATING CAPITAL
------------------- --------- -------
<S> <C> <C>
1999.................................................. $ 334 $ 569
2000.................................................. 1,614 2,133
2001.................................................. 1,845 1,566
2002.................................................. 1,899 247
2003.................................................. 1,788 --
------
Total payments...................................... 4,515
Less amount representing interest, at rates ranging from
8% to 10%.............................................. 640
------
Present value of minimum debt payments.................. 3,875
Less current portion.................................... 1,843
------
Long term portion................................... $2,032
======
</TABLE>
Rent expense for 1995, 1996, 1997, one month ended January 31, 1998 and the
nine months ended October 25, 1998 was approximately $325,000 $408,000,
$425,000, $52,000 and $1,052,000, respectively.
Litigation
On April 9, 1998, the Company was notified that SGI had filed a patent
infringement lawsuit against the Company in the United States District Court
for the District of Delaware. The suit alleges that the sale and use of the
Company's RIVA family of 3D graphics processors infringes a United States
patent held by SGI. The suit seeks unspecified damages (including treble
damages), an order permanently enjoining further alleged infringement and
attorneys' fees. On May 11, 1998, the Company was notified that S3 had filed a
patent infringement lawsuit against the Company in the United States District
Court for the Northern District of California. The suit alleges that the sale
and use of the Company's RIVA family of 3D graphics processors infringes three
United States patents held by S3. The suit seeks unspecified damages
(including treble damages), an order permanently enjoining further alleged
infringement and attorneys' fees. On September 21, 1998, the Company was
notified that 3Dfx had filed a patent infringement lawsuit against the Company
in the United States District Court for the Northern District of California.
The suit alleges that the sale and use of the Company's RIVA TNT graphics
processor infringes a United States patent held by 3Dfx. The suit seeks
unspecified damages (including treble damages), an order permanently enjoining
further alleged infringement and attorneys' fees. The Company has filed
answers to each suit and has filed counterclaims asserting that the patents in
each suit are
F-16
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO JANUARY 26, 1997 AND SEPTEMBER 28, 1997 DATA)
neither infringed nor valid. Based on its investigation to date, the Company
believes that it has meritorious defenses to the claims brought and intends to
defend itself vigorously with respect to all three lawsuits.
The litigation with SGI, S3 and 3Dfx has resulted, and the Company expects
that it will continue to result, in significant expense to the Company and
divert the efforts of the Company's technical and management personnel, whether
or not such litigation results in a favorable determination for the Company. In
the event of an adverse result in either suit, the Company could be required to
do one or more of the following: pay substantial damages (including treble
damages); permanently cease the manufacture, use and sale of any infringing
products; expend significant resources to develop non-infringing technology; or
obtain a license from SGI, S3 or 3Dfx for any infringing technology. Any of
these suits could result in limitations on the Company's ability to market its
products, delays and costs associated with redesigning its products or payments
of license fees or other payments to SGI, S3 or 3Dfx, any of which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
(5) INCOME TAXES
The Company recorded no provision or benefit for income taxes in 1995, 1996,
1997, the one month ended January 26, 1997, and the nine months ended September
28, 1997. The provision (benefit) for the one month ended January 31, 1998 and
the nine months ended October 25, 1998, consisted entirely of current federal
tax expense (benefit).
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to income before taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, ONE MONTH ENDED NINE MONTHS ENDED
------------------ ----------------------- -------------------------
JANUARY 26, JANUARY 31, SEPTEMBER 28, OCTOBER 25,
1995 1996 1997 1997 1998 1997 1998
---- ---- ---- ----------- ----------- ------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Tax computed at federal
statutory rate......... (34)% (34)% (34)% (34)% (34)% (34)% (34)%
Loss carryforward for
which no tax benefit is
recognized............. 34 34 34 34 34 34 34
Alternate Minimum Tax... -- -- -- -- 9 -- (8)
--- --- --- --- --- --- ---
Total.................. -- % -- % -- % -- % 9 % -- % (8)%
=== === === === === === ===
</TABLE>
The tax effect of temporary differences that gives rise to significant
portions of the deferred tax assets are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JANUARY 31, OCTOBER 25,
1996 1997 1998 1998
------- ------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net operating loss carryforwards..... $ 3,374 $ 3,743 $ 3,380 $ 4,225
Plant and equipment--depreciation
differences......................... 127 173 177 211
Advances on development contract..... 996 996 996 160
Research credit carryforwards........ 617 1,058 1,095 1,426
Stock options........................ -- 72 72 72
Alternate Minimum Tax................ -- -- 134 --
Other reserves and accruals.......... 107 229 228 2,166
------- ------- ------- -------
Total gross deferred tax assets.... 5,221 6,271 6,082 8,260
Less valuation allowance............. (5,221) (6,271) (6,082) (8,260)
------- ------- ------- -------
Net deferred tax assets............ $ -- $ -- $ -- $ --
======= ======= ======= =======
</TABLE>
F-17
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO JANUARY 26, 1997 AND SEPTEMBER 28, 1997 DATA)
The net increase in the valuation allowance was approximately $1,800,000 and
$1,050,000 for the years ended December 31, 1996 and 1997, respectively, a
decrease of $189,000 for the period ended January 31, 1998 and an increase of
$2,178,000 for the period ended October 25, 1998. The Company believes that
considerable uncertainty exists with respect to future realization of these
deferred tax assets; therefore, it has established a valuation allowance
against all net deferred tax assets.
As of December 31, 1997 the Company had net operating loss carryforwards for
federal income tax return purposes of approximately $10,000,000, which can be
used to reduce future taxable income. These carryforwards expire in 2008
through 2012. As of December 31, 1997, the Company had California operating
loss carryforwards of approximately $5,000,000 available to offset future
income subject to California franchise tax. The difference between the federal
loss carryforwards and California loss carryforwards results primarily from a
50% limitation on California loss carryforwards, and certain research and
development costs that were deferred for California tax purposes. The
California net operating loss carryforwards expire in various amounts from
1998 though 2002. The Company also has federal and California tax credit
carryforwards of approximately $600,000 and $500,000, respectively, as of
December 31, 1997. The federal tax credits expire through 2012 and the
California tax credits may be carried over indefinitely.
Under the Tax Reform Act of 1986, the amounts of any benefit from net
operating losses and credits that can be carried forward may be limited in the
event of an ownership change as defined in the Internal Revenue Code, Section
382.
(6) DEVELOPMENT AGREEMENTS
The Company has a strategic collaboration agreement with ST
Microelectronics, Inc. ("ST") for the manufacture, marketing, and sale of
certain of the Company's products. In 1996, ST paid the Company $2,500,000 for
advanced royalty payments and agreed to partially support the research and
development and marketing efforts for certain of the Company's products. In
connection with this agreement the Company recorded royalty income of $79,000,
$202,000, $1,791,000, $1,911,000, and $5,945,000, in 1995, 1996, 1997, the one
month ended January 31, 1998, and the nine months ended October 25, 1998,
respectively; a reduction to research and development cost of $1,580,000 and
$1,936,000 in 1996 and 1997, respectively, and a reduction to sales, general
and administrative expense of $420,000 and $314,000 in 1996 and 1997,
respectively. In January of 1998, ST agreed to forgive the $2,500,000 in
advanced royalty payments in exchange for the Company's obligation to provide
ST continued development and support on certain products developed through the
end of 1998. Accordingly, $2,500,000 is included in accrued liabilities at
December 31, 1996 and 1997 and $417,000 is included in accrued liabilities at
October 25, 1998.
In May 1995, the Company entered into a five year strategic alliance
agreement (the "Agreement") with a third party to develop a product, the NV2,
using the Company's technology with the purpose of incorporating the NV2 into
such third party's products. The third party made nonrefundable payments to
the Company to develop the NV2. The Company recorded a reduction to research
and development of $2,000,000 in 1995 and $3,000,000 in 1996. As part of this
agreement, the third party also purchased in July 1995, 750,000 shares of
Series C convertible preferred stock for $5,000,000. The third party revised
its product development plans, and the Company terminated the development of
this particular technology in 1996.
The costs incurred under the development agreements approximated the amounts
recorded as reduction to expenses.
(7) RISK AND UNCERTAINTIES
Product Concentration. The Company designs, develops and markets 3D graphics
processors for the mainstream PC market. Substantially all of the Company's
revenue from product sales in 1997 and 1998 was
F-18
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO JANUARY 26, 1997 AND SEPTEMBER 28, 1997 DATA)
derived from sales of 3D graphics processor. Since the Company has no other
product line, the Company's business, financial condition and results of
operations would be materially adversely affected if for any reason its
current or future 3D graphics processors do not achieve widespread acceptance
in the mainstream PC market.
Customer Concentration. The Company has only a limited number of customers
and its sales are highly concentrated. The Company primarily sells its
products to add-in board manufacturers, which incorporate graphics products in
the boards they sell to PC OEMs. Sales to add-in board manufacturers are
primarily dependent on achieving design wins with leading PC OEMs, and the
Company believes that the large majority of its revenue in the nine months
ended October 25, 1998 was attributable to products that ultimately were
incorporated into PCs sold by Compaq, Dell, Gateway, Micron and Packard Bell
NEC. As a result, the Company's business, financial condition and results of
operations could be materially adversely affected by the decision of a single
PC OEM or add-in board manufacturer to cease using the Company's products or
by a decline in the number of PCs or boards sold by a single PC OEM or add-in
board manufacturers or by a small number of customers.
The following table summarizes geographic information on net sales:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, ONE MONTH ENDED NINE MONTHS ENDED
--------------------- JANUARY 31, OCTOBER 25,
1995 1996 1997 1998 1998
------ ------ ------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
U.S. .................. $1,178 $3,863 $29,071 $13,331 $72,354
Europe................. -- -- -- -- 1,986
Asia Pacific........... 4 49 -- -- 18,360
------ ------ ------- ------- -------
Total net sales...... $1,182 $3,912 $29,071 $13,331 $92,700
====== ====== ======= ======= =======
</TABLE>
Revenues to significant customers, those representing approximately 10% or
more of total revenue for the respective periods, are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, ONE MONTH ENDED NINE MONTHS ENDED
---------------- JANUARY 31, OCTOBER 25,
1995 1996 1997 1998 1998
---- ---- ---- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Sales
Customer A................... -- -- 63% 59% 40%
Customer B................... 86% 82% 31% 39% 28%
Customer C................... -- -- -- -- 12%
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, JANUARY 31, OCTOBER 25,
1997 1998 1998
------------ ----------- -----------
<S> <C> <C> <C>
Accounts Receivable
Customer A............................... 52% 57% 27%
Customer B............................... 48% 43% 33%
Customer C............................... -- -- 19%
Customer D............................... -- -- 12%
</TABLE>
No customers accounted for more than 10% of accounts receivable as of
December 31, 1995 and 1996.
Markets. In the nine months ended October 25, 1998, the Company derived all
of its revenue from the sale or license of products for use in PCs. The PC
market is characterized by rapidly changing technology, evolving industry
standards, frequent new product introductions and significant price
competition, resulting in short product life cycles and regular reductions in
average selling prices over the life of a specific product. In addition,
F-19
<PAGE>
NVIDIA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO JANUARY 26, 1997 AND SEPTEMBER 28, 1997 DATA)
the Company's success will depend in part upon the emerging mainstream PC 3D
graphics market. This market has only recently begun to emerge and is
dependent on future development of a substantial customer and computer
manufacturer demand for 3D graphics functionality. If the market for
mainstream PC 3D graphics fails to develop or develops more slowly than
expected, the Company's business, financial condition and results of
operations could be materially adversely affected.
Intellectual Property. The Company relies primarily on a combination of
patent, mask work protection, trademarks, copyrights, trade secret laws,
employee and third-party nondisclosure agreements and licensing arrangements
to protect its intellectual property. Vigorous protection and pursuit of
intellectual property rights or positions characterize the semiconductor
industry, which in turn has resulted in significant and often protracted and
expensive litigation. The 3D graphics market in particular has been
characterized recently by the aggressive pursuit of intellectual property
positions. Infringement claims by third parties or claims for indemnification
by customers or end users of the Company's products resulting from
infringement claims could be asserted in the future and such assertions, of
proven to be true, could materially adversely affect the Company's business,
financial condition and results of operations. Any limitations on the
Company's ability to market its products, or delays and costs associated with
redesigning its products or payments of license fees to third parties, or any
failure by the Company to develop or license a substitute technology on
commercially reasonable terms, could have a material adverse effect on the
Company's business, financial condition and results of operations.
F-20
<PAGE>
INSIDE BACK COVER
[Description of illustrations: Depiction of a bee on a computer screen in the
following phases of graphic rendering--wire frame, Gouraud shading, texture
mapping and bump mapping with lighting and reflections.]
Stage 1: Basis of 3-dimensional objects
The wire frame model is typically expressed as a set of polygons,
such as triangles, that form the basic shape of a 3-dimensional object.
Stage 2: Solid Beginnings
Adding shading and surface color to a wire frame model provides the impression
of solidity to the model. Flat shading, the simplest method by by which each
pixel in a given triangle is assigned one single color, results in a multi-
faceted appearance of the surface.
Stage 3: Creating Definition
The color shades on a triangle are calculated by interpolating the color
values at each corner of the triangle, resulting in a smooth appearance of the
surface. The Gouraud shading technique makes the object appear to be smoothly
curved despite being composed of individual polygons.
Stage 4: Adding Realism
Texture mapping adds realism to a computer-generated scene by warping or
draping an image (the texture) over a polygonal surface. The texture is warped
to simulate perspective of a 3D object. A lighting model is then applied to
produce the effect of different light sources interacting with solid objects.
Stage 5: Vivid Imagery
The final enhancement comes from bump mapping effects added to the
texture-mapped object. Bump mapping gives the appearance that bumps,
roughness, or dimples exist, providing for a rich, organic appearance.
Final Stage: Rasterization
The rasterization process is the most computationally intensive step that
computes the color uniquely for each pixel as well as performs the remaining
visual cues, such as shading, shadows, focus and occlusion. To deliver a
realistic and interactive experience, hundreds and thousands of polygons
and millions of pixels must be rendered at 60 frames per second requiring
billions of floating-point and integer operations (every second/in real time).
<PAGE>
[LOGO OF NVIDIA]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the
sale of the shares of Common Stock being registered. All the amounts shown are
estimates except for the SEC registration fee, the NASD filing fee and the
Nasdaq National Market application fee.
<TABLE>
<S> <C>
SEC Registration fee.......................................... $ 11,800
NASD filing fee............................................... 4,500
Nasdaq National Market listing fee............................ 95,000
Blue sky qualification fees and expenses...................... 5,000
Printing and engraving expenses............................... 250,000
Legal fees and expenses....................................... 500,000
Accounting fees and expenses.................................. 280,000
Insurance expenses............................................ 550,000
Transfer agent and registrar fees............................. 10,000
Miscellaneous................................................. 93,700
----------
Total..................................................... $1,800,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
As permitted by Section 145 of the Delaware General Corporation Law, the
Bylaws of the Company provide that (i) the Company is required to indemnify
its directors and executive officers to the fullest extent permitted by the
Delaware General Corporation Law, (ii) the Company may, in its discretion,
indemnify other officers, employees and agents as set forth in the Delaware
General Corporation Law, (iii) to the fullest extent not prohibited by the
Delaware General Corporation Law, the Company is required to advance all
expenses incurred by its directors and executive officers in connection with a
legal proceeding (subject to certain exceptions), (iv) the rights conferred in
the Bylaws are not exclusive, (v) the Company is authorized to enter into
indemnification agreements with its directors, officers, employees and agents
and (vi) the Company may not retroactively amend the Bylaws provisions
relating to indemnity.
The Company has entered into agreements with its directors and executive
officers that require the Company to indemnify such persons against expenses,
judgments, fines, settlements and other amounts that such person becomes
legally obligated to pay (including expenses of a derivative action) in
connection with any proceeding, whether actual or threatened, to which any
such person may be made a party by reason of the fact that such person is or
was a director or officer of the Company or any of its affiliated enterprises,
provided such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Company. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since December 1, 1995, the Registrant has sold and issued the following
unregistered securities:
(1) In October 1996, the Company issued, in connection with equipment
leases, a warrant to purchase 200 shares of Series B Preferred Stock at an
exercise price of $6.67 per share and a warrant to purchase 4,600 shares of
Series C Preferred Stock at an exercise price of $6.67.
II-1
<PAGE>
(2) In August and September 1997, the Company sold an aggregate of
1,438,812 shares of Series D Preferred Stock to certain investors for an
aggregate purchase price of $7,568,151.
(3) In September 1997, the Company issued, in connection with an
equipment lease, a warrant to purchase 7,843 shares of Series D Preferred
Stock at an exercise price of $5.26 per share.
(4) In October 1997, the Company issued, in connection with an equipment
leases, warrants to purchase an aggregate of 21,863 shares of Series D
Preferred Stock at an exercise price of $5.26 per share.
(5) In October 1997, the Company issued an option to purchase 50,000
shares of Common Stock at an exercise price of $2.64 per share.
(6) On July 22, 1998 and August 14, 1998, the Company sold Convertible
Subordinated Notes to three investors for an aggregate purchase price of
$11,000,000.
(7) From December 1, 1995 to December 21, 1998, the Company granted stock
options to employees, directors and consultants covering an aggregate of
13,171,272 shares of the Company's Common Stock, at exercise prices varying
from $.18 to $9.00. Of such shares, 3,046,810 shares have been issued and
sold pursuant to the exercise of such options. Options to purchase
3,287,342 shares of Common Stock have been canceled or have lapsed without
being exercised or otherwise been canceled. Stock awards for an aggregate
of 23,682 shares were issued at purchase prices varying from $.18 to $6.30.
The Company claimed exemptions under the Securities Act from registration
under the Securities Act for the sale and issuance of securities in the
transaction described in paragraphs (1) through (6) by virtue of Section 4(2)
or Regulation D promulgated thereunder as transactions not involving public
offering. The purchasers in each case represented their intention to acquire
the securities for investment only and not with a view to the distribution
thereof. Appropriate legends are affixed to the stock certificates issued in
such transactions. All recipients either received adequate information about
the Registrant or had access, through employment or other relationships, to
such information. In addition, the purchasers of the Notes described in
paragraph (6) above were "accredited investors" (as that term is defined in
Rule 501(a)(3) promulgated under the Securities Act). Each purchaser of such
Notes is a large corporation with pre-existing business relationships with the
Company.
The sales and issuances in the transactions described in paragraph (7) above
were deemed to be exempt from registration under the Securities Act by virtue
of Rule 701 promulgated thereunder, in that they were issued pursuant to a
written compensatory benefit plan, as provided by Rule 701.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+ Certificate of Incorporation of the Company.
3.2 Bylaws of the Company.
3.3 Form of Amended and Restated Certificate of Incorporation to be
filed upon completion of this offering.
4.1+ Reference is made to Exhibits 3.1 and 3.2.
4.2+ Specimen Stock Certificate.
4.3+ Second Amended and Restated Investors' Rights Agreement, dated
August 19, 1997 between the Company and the parties indicated
thereto and First Amendment to Second Amended and Restated
Investors' Rights Agreement, dated July 22, 1998.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
5.1 Opinion of Cooley Godward LLP.
10.1+ Form of Indemnity Agreement between Registrant and each of
its directors and officers.
10.2 1998 Equity Incentive Plan.
10.3+ Form of Incentive Stock Option Agreement under the 1998
Equity Incentive Plan.
10.4+ Form of Nonstatutory Stock Option Agreement under the 1998
Equity Incentive Plan.
10.5+ 1998 Employee Stock Purchase Plan.
10.6 Form of Employee Stock Purchase Plan Offering.
10.7+ 1998 Non-Employee Directors' Stock Option Plan.
10.8+ Form of Nonstatutory Stock Option Agreement under the 1998
Non-Employee Directors' Stock Option Plan (Initial Grant).
10.9+ Form of Nonstatutory Stock Option Agreement under the 1998
Non-Employee Directors' Stock Option Plan (Annual Grant).
10.10+** Strategic Collaboration Agreement dated November 10, 1993
between the Company and ST Microelectronics, Inc., as
amended on June 3, 1996 and January 27, 1998.
10.11+ Sublease Agreement, dated February 16, 1995, between Amdahl
Corporation and the Company, as amended on March 1, 1995 and
September 1, 1995.
10.12+ Form of Nonstatutory Stock Option Agreement under the 1998
Non-Employee Directors' Stock Option Plan (Committee Grant).
10.13+ Sublease dated April 2, 1998 between Apple Computer, Inc. and
the Company.
10.14+ Loan and Security Agreement, dated September 3, 1998, between
Registrant and Imperial Bank, as amended by letter agreement
dated November 12, 1998.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP (reference is made to Exhibit
5.1).
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- --------
+ Previously filed
** Confidential treatment has been requested for portions of this document.
The information omitted pursuant to such request has been filed separately
with the Securities and Exchange Commission.
(b) FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<C> <S>
Schedule II. Valuation for Qualifying Accounts
</TABLE>
Schedules not listed above are omitted because they are not required, they
are not applicable or the information is already included in the financial
statements or notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 14, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that: (1) for purposes of
determining any liability under the Act, the information omitted from the form
of prospectus as filed as part of the registration statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to
be part of the registration statement as of the time it was declared
effective, (2) for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and this offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof, and (3) to remove from registration
by means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SANTA CLARA, STATE OF
CALIFORNIA, ON THE 23RD DAY OF DECEMBER 1998.
NVIDIA Corporation
/s/ Jen-Hsun Huang
By: _________________________________
Jen-Hsun Huang
President, Chief Executive Officer
and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jen-Hsun Huang President, Chief Executive December 23, 1998
____________________________________ Officer and Director
Jen-Hsun Huang (Principal Executive
Officer)
/s/ Christine B. Hoberg Chief Financial Officer December 23, 1998
____________________________________
Christine B. Hoberg
Tench Coxe* Director December 23, 1998
____________________________________
Tench Coxe
Harvey C. Jones, Jr.* Director December 23, 1998
____________________________________
Harvey C. Jones, Jr.
William J. Miller* Director December 23, 1998
____________________________________
William J. Miller
A. Brooke Seawell* Director December 23, 1998
____________________________________
A. Brooke Seawell
Mark A. Stevens* Director December 23, 1998
____________________________________
Mark A. Stevens
/s/ Jen-Hsun Huang
*By: _______________________________
Jen-Hsun Huang
As Attorney-In-Fact
</TABLE>
II-5
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS (1) OF PERIOD
----------- --------- ---------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Nine months ended
October 25, 1998
Allowance for sales
return and
doubtful accounts.... $349 5,822 -- (2,665) $3,506
==== ===== === ====== ======
One month ended January
31, 1998
Allowance for sales
return and
doubtful accounts.... $100 249 -- -- $ 349
==== ===== === ====== ======
Year ended December 31,
1997
Allowance for sales
return and
doubtful accounts.... $-- 100 -- -- $ 100
==== ===== === ====== ======
</TABLE>
- --------
(1) Represents amounts written off against the allowance
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+ Certificate of Incorporation of the Company.
3.2 Bylaws of the Company.
3.3 Form of Amended and Restated Certificate of Incorporation to be
filed upon completion of this offering.
4.1+ Reference is made to Exhibits 3.1 and 3.2.
4.2+ Specimen Stock Certificate.
4.3+ Second Amended and Restated Investors' Rights Agreement, dated
August 19, 1997 between the Company and the parties indicated
thereto and First Amendment to Second Amended and Restated
Investors' Rights Agreement, dated July 22, 1998.
5.1 Opinion of Cooley Godward LLP.
10.1+ Form of Indemnity Agreement between Registrant and each of its
directors and officers.
10.2 1998 Equity Incentive Plan.
10.3+ Form of Incentive Stock Option Agreement under the 1998 Equity
Incentive Plan.
10.4+ Form of Nonstatutory Stock Option Agreement under the 1998
Equity Incentive Plan.
10.5+ 1998 Employee Stock Purchase Plan.
10.6 Form of Employee Stock Purchase Plan Offering.
10.7+ 1998 Non-Employee Directors' Stock Option Plan.
10.8+ Form of Nonstatutory Stock Option Agreement under the 1998 Non-
Employee Directors' Stock Option Plan (Initial Grant).
10.9+ Form of Nonstatutory Stock Option Agreement under the 1998 Non-
Employee Directors' Stock Option Plan (Annual Grant).
10.10+** Strategic Collaboration Agreement dated November 10, 1993
between the Company and ST Microelectronics, Inc., as amended
on June 3, 1996 and January 27, 1998.
10.11+ Sublease Agreement, dated February 16, 1995, between Amdahl
Corporation and the Company, as amended on March 1, 1995 and
September 1, 1995.
10.12+ Form of Nonstatutory Stock Option Agreement under the 1998 Non-
Employee Directors' Stock Option Plan (Committee Grant).
10.13+ Sublease dated April 2, 1998 between Apple Computer, Inc. and
the Company.
10.14+ Loan and Security Agreement, dated September 3, 1998, between
Registrant and Imperial Bank, as amended by letter agreement
dated November 12, 1998.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP (reference is made to Exhibit
5.1).
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- --------
+ Previously filed
** Confidential treatment has been requested for portions of this document.
The information omitted pursuant to such request has been filed separately
with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 1.1
3,500,000 SHARES
NVIDIA CORPORATION
COMMON STOCK, $0.001 PAR VALUE PER SHARE
UNDERWRITING AGREEMENT
__________, 1999
<PAGE>
_____________, 1999
Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
Prudential Securities Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
NVIDIA Corporation, a Delaware corporation (the "COMPANY"), proposes
to issue and sell to the several Underwriters named in Schedule I hereto (the
"UNDERWRITERS") an aggregate of 3,500,000 shares of the Common Stock, $0.001
par value, of the Company (the "FIRM SHARES").
The Company also proposes to issue and sell to the several
Underwriters not more than an additional 525,000 shares of its Common Stock,
$0.001 par value (the "ADDITIONAL SHARES") if and to the extent that you, as
Managers of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "SHARES." The shares of Common
Stock, $0.001 par value, of the Company to be outstanding after giving effect to
the sales contemplated hereby are hereinafter referred to as the "COMMON STOCK."
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "PROSPECTUS."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference herein to the
term "REGISTRATION STATEMENT" shall be deemed to include such Rule 462
Registration Statement.
As part of the offering contemplated by this Agreement, Morgan Stanley
& Co. Incorporated ("MORGAN STANLEY") has agreed to reserve out of the Shares
set forth opposite its name on Schedule I to this Agreement, up to
________________ shares, for sale to the Company's employees,
-2-
<PAGE>
officers, directors and other parties associated with the Company (collectively,
"PARTICIPANTS") (the "DIRECTED SHARE PROGRAM"). The Shares to be sold by Morgan
Stanley pursuant to the Directed Share Program (the "DIRECTED SHARES") will be
sold by Morgan Stanley pursuant to this Agreement at the public offering price.
Any Directed Shares not orally confirmed for purchase by any Participants by the
end of the business day on which this Agreement is executed will be offered to
the public by Morgan Stanley as set forth in the Prospectus.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective under the
Securities Act; no stop order suspending the effectiveness of the
Registration Statement is in effect, and no proceedings for such purpose
are pending before or to its knowledge threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder (the "Rules") and (iii) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus
based upon information relating to any Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the state of Delaware, has
the corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not have a material adverse effect on the
Company.
(d) The Company does not own directly or indirectly, an interest in
any corporation, partnership, business, trust, joint venture, association
or other similar entity.
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
-3-
<PAGE>
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable; except as set forth in the Prospectus, the Company does not
have outstanding any options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares
of its capital stock or any such options, rights, convertible securities or
obligations; and all outstanding shares of capital stock and options and
other rights to acquire capital stock of the Company have been issued in
compliance with the registration and qualification provisions of all
applicable securities laws and were not issued in violation of any
preemptive rights, rights of first refusal or other similar rights.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive rights, rights of first refusal or similar
rights.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or
bylaws of the Company or any agreement or other instrument binding upon the
Company that is material to the Company, or any judgment, order or decree
of any governmental body, agency or court having jurisdiction over the
Company, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states and jurisdictions in connection with the offer and sale of the
Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company, from that set forth in the Prospectus (exclusive
of any amendments or supplements thereto subsequent to the date of this
Agreement).
(k) There are no legal, regulatory or governmental proceedings
pending or to the knowledge of the Company threatened to which the Company
is a party or to which any of the properties of the Company is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or any statutes, regulations, contracts
or other documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required.
(l) The Company has all necessary consents, authorizations,
approvals, orders, certificates and permits of and from, and has made all
declarations and filings with, all foreign, federal, state, local and other
governmental authorities, all self-regulatory organizations and all courts
and other tribunals, to own, lease, license and use its properties and
assets and to conduct its business in the manner described in the
Prospectus, except to the extent that the failure to
-4-
<PAGE>
obtain or file would not, singly or in the aggregate, have a material
adverse effect on the Company.
(m) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(n) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(o) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants (collectively,
"ENVIRONMENTAL LAWS"), (ii) has received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company.
(p) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company.
(q) There is no legal or beneficial owner of any securities of the
Company who has any rights, not effectively satisfied or waived, to require
registration of shares of capital stock of the Company in connection with
the filing of the Registration Statement.
(r) The Company has complied with all provisions of Section 517.075,
Florida Statute relating to issuers doing business with Cuba.
(s) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company has
not incurred any material liability or obligation, direct or contingent,
nor entered into any material transaction in each case not in the ordinary
course of business; (ii) the Company has not purchased any of its
outstanding capital stock other than unvested shares from former employees,
directors or consultants in accordance with the applicable governing terms
of agreements existing as of the date hereof, nor declared, paid or
otherwise made any dividend or distribution of any kind on its capital
stock; and (iii) there has not been any material change in the capital
stock, short-term debt or long-term debt of the Company, except as
described in the Prospectus.
-5-
<PAGE>
(t) The Company has good and marketable title in fee simple to all
real property and good and marketable title to all personal property owned
by it that is material to the business of the Company, in each case free
and clear of any security interest, lien, encumbrance, claim, defect or
adverse interest of any nature except such as are described in the
Prospectus or such as do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of such
property by the Company; and any real property and buildings held under
lease by the Company is held by it under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with
the use made and proposed to be made of such property and buildings by the
Company, except as described in the Prospectus.
(u) The Company owns or possesses adequate licenses or other rights
to use all patents, patent rights, inventions, trade secrets, copyrights,
trademarks, service marks, trade names, technology and know-how necessary
to conduct its business in the manner currently employed and as described
in the Prospectus; the Company is not obligated to pay a royalty, grant a
license, or provide other consideration to any third party in connection
with its patents, copyrights, trademarks, service marks, trade names, or
technology other than as disclosed in the Prospectus, and, except as
disclosed in the Prospectus, the Company has not received any notice of
infringement or conflict with (and the Company does not know of any
infringement or conflict with) asserted rights of others with respect to
any patents, patent rights, inventions, trade secrets, copyrights,
trademarks, service marks, trade names or know-how which could result in
any material adverse effect upon the Company; and, except as disclosed in
the Prospectus, the discoveries, inventions, products or processes of the
Company referred to in the Prospectus do not, to the best knowledge of the
Company, infringe or conflict with any right or patent of any third party,
or any discovery, invention, product or process which is the subject of a
patent application filed by any third party, known to the Company which
could have a material adverse effect on the Company. Except as disclosed in
the Prospectus, no third party, including any academic or governmental
organization, possesses rights to the Company's patents, copyrights,
trademarks, service marks, trade names, or technology which, if exercised,
could enable such third party to develop products that could have a
material adverse effect on the ability of the Company to conduct its
business in the manner described in the Prospectus.
(v) No material labor dispute with the employees of the Company
exists, except as described in the Prospectus, or, to the knowledge of the
Company, is imminent; and the Company is not aware of any existing,
threatened or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors that could have a
material adverse effect on the Company.
(w) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the business in which the Company is engaged; the
Company has not been refused any insurance coverage sought or applied for;
and the Company does not have any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a material
adverse effect on the Company, except as described in the Prospectus.
-6-
<PAGE>
(x) The Company possesses all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct its business, and the Company has not
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the Company, except as
described in the Prospectus
(y) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (1) transactions are
executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (3) access to
assets is permitted only in accordance with management's general or
specific authorization; and (4) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(z) The Nasdaq Stock Market, Inc. has approved the Common Stock for
listing on the Nasdaq National Market, subject only to official notice of
issuance.
(aa) Except for the Shares or as disclosed in the Prospectus, all
outstanding shares of Common Stock, and all securities convertible into or
exercisable or exchangeable for Common Stock, are subject to valid and
binding agreements (collectively, the "LOCK-UP AGREEMENTS") that, subject
to certain exceptions, restrict the holders thereof from selling, making
any short sale of, granting any option for the purchase of, or otherwise
transferring or disposing of, any of such shares of Common Stock, or any
such securities convertible into or exercisable or exchangeable for Common
Stock, for a period of 180 days after the date of the Prospectus without
the prior written consent of the Company or Morgan Stanley.
(bb) The Company (i) has notified each holder of a currently
outstanding option issued under the 1998 Equity Incentive Plan and the 1998
Non-Employee Directors' Stock Option Plan (the "OPTION PLANS") and each
person who has acquired shares of Common Stock pursuant to the exercise of
any option granted under the Option Plans that, subject to certain
exceptions, pursuant to the terms of the Option Plans, none of such options
or shares may be sold or otherwise transferred or disposed of for a period
of 180 days after the date of the Prospectus, without the prior written
consent of the Company or Morgan Stanley and (ii) has imposed a stop-
transfer instruction with the Company's transfer agent in order to enforce
the foregoing lock-up provision imposed pursuant to the Option Plans.
(cc) The Company (i) has notified each shareholder who is party to the
Second Amended and Restated Investor Rights Agreement dated August 19,
1997, as amended (the "INVESTOR RIGHTS AGREEMENT"), that, subject to
certain exceptions, pursuant to the terms of the Investor Rights Agreement,
none of the shares of the Company's capital stock held by such shareholder
may be sold or otherwise transferred or disposed of for a period of 180
days after the date of the Prospectus, without the prior written consent of
the Company or Morgan Stanley and
-7-
<PAGE>
(ii) has imposed a stop-transfer instruction with the Company's transfer
agent in order to enforce the foregoing lock-up provision imposed pursuant
to the Investor Rights Agreement.
(dd) The Company has not offered, or caused the Underwriters to offer,
Shares to any person pursuant to the Directed Share Program with the
specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business
with the Company, or (ii) a trade journalist or publication to write or
publish favorable information about the Company or its products.
Furthermore, the Company represents and warrants to Morgan Stanley
that (i) the Registration Statement, the Prospectus and any preliminary
prospectus comply, and any further amendments or supplements thereto will
comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or
supplemented, if applicable, are distributed in connection with the
Directed Share Program, and that (ii) no authorization, approval, consent,
license, order, registration or qualification of or with any government,
governmental instrumentality or court, other than such as have been
obtained, is necessary under the securities laws and regulations of foreign
jurisdictions in which the Directed Shares are offered outside the United
States.
2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees to
sell to the several Underwriters, and each Underwriter, upon the basis of
the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees, severally and not jointly, to
purchase from the Company at $______ a share (the "PURCHASE PRICE") the
respective number of Firm Shares set forth in Schedule I hereto opposite
the name of such Underwriter.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to
issue and sell to the Underwriters the Additional Shares, and the
Underwriters shall have a one-time right to purchase, severally and not
jointly, up to 525,000 Additional Shares at the Purchase Price. If you,
on behalf of the Underwriters, elect to exercise such option, you shall so
notify the Company in writing not later than 30 days after the date of this
Agreement, which notice shall specify the number of Additional Shares to be
purchased by the Underwriters and the date on which such shares are to be
purchased. Such date may be the same as the Closing Date (as defined
below) but not earlier than the Closing Date nor later than ten business
days after the date of such notice. Additional Shares may be purchased as
provided in Section 4 hereof solely for the purpose of covering over-
allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally
and not jointly, to purchase the number of Additional Shares (subject to
such adjustments to eliminate fractional shares as you may determine) that
bears the same proportion to the total number of Additional Shares to be
purchased as the number of Firm Shares set forth in Schedule I hereto
opposite the name of such Underwriter bears to the total number of Firm
Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the
period ending 180 days after the date of the
-8-
<PAGE>
Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, lend, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap or other arrangement that transfers to another,
in whole or in part, any of the economic consequences of ownership of the
Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder, (B) the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof of which the
Underwriters have been advised in writing or (C) the grant or exercise of
options to purchase Common Stock under the Company's employee benefit
plans.
3. TERMS OF PUBLIC OFFERING. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement
have become effective as in your judgment is advisable. The Company is
further advised by you that the Shares are to be offered to the public
initially at $_____________ a share (the "PUBLIC OFFERING PRICE") and to
certain dealers selected by you at a price that represents a concession not
in excess of $______ a share under the Public Offering Price, and that any
Underwriter may allow, and such dealers may reallow, a concession, not in
excess of $_____ a share, to any Underwriter or to certain other dealers.
4. PAYMENT AND DELIVERY. Payment for the Firm Shares shall be made
to the Company in federal or other funds immediately available in New York
City against delivery of such Firm Shares for the respective accounts of
the several Underwriters at 10:00 a.m., New York City time, on
____________, 1999, or at such other time on the same or such other date,
not later than _________, 1999, as shall be designated in writing by you.
The time and date of such payment are hereinafter referred to as the
"CLOSING DATE."
Payment for any Additional Shares shall be made to the Company in
federal or other funds immediately available in New York City against
delivery of such Additional Shares for the respective accounts of the
several Underwriters at 10:00 a.m., New York City time, on the date
specified in the notice described in Section 2 or at such other time on the
same or on such other date, in any event not later than _______, 1999, as
shall be designated in writing by you. The time and date of such payment
are hereinafter referred to as the "OPTION CLOSING DATE."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as
you shall request in writing not later than one full business day prior to
the Closing Date or the Option Closing Date, as the case may be. The
certificates evidencing the Firm Shares and Additional Shares shall be
delivered to you on the Closing Date or the Option Closing Date, as the
case may be, for the respective accounts of the several Underwriters, with
any transfer taxes payable in connection with the transfer of the Shares to
the Underwriters duly paid, against payment of the Purchase Price therefor.
-9-
<PAGE>
5. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of
the Company to sell the Shares to the Underwriters and the several
obligations of the Underwriters to purchase and pay for the Shares on the
Closing Date are subject to the condition that the Registration Statement
shall have become effective not later than [__________] (New York City
time) on the date hereof.
The several obligations of the Underwriters hereunder are subject to
the following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and prior
to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company,
from that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement) that, in
your judgment, is material and adverse and that makes it, in your
judgment, impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by the chief executive
officer and the chief financial officer of the Company, to the effect set
forth in Section 5(a)(i) above and to the effect that the representations
and warranties of the Company contained in this Agreement are true and
correct as of the Closing Date and that the Company has complied with all
of the agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before the Closing Date.
The officers signing and delivering such certificate may rely upon the
best of their knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Cooley Godward LLP, outside counsel for the Company, dated the
Closing Date, substantially to the effect that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the state of
Delaware, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of
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property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a
material adverse effect on the Company;
(ii) the Company has no subsidiaries;
(iii) the Agreement and Plan of Merger dated April 16, 1998
(the "PLAN OF MERGER") by and between the Company and NVIDIA
Corporation, a California corporation ("NVIDIA CALIFORNIA"), has been
duly authorized by all necessary board of directors and stockholder
action on part of the Company and NVIDIA California and has been duly
executed and delivered by each of the parties thereto. The execution
and delivery of the Plan of Merger and the consummation of the merger
contemplated thereby (the "MERGER") did not contravene any provision
of applicable law or the certificate of incorporation or bylaws of the
Company or the articles of incorporation or bylaws of NVIDIA
California or any agreement or other instrument binding upon the
Company that is material to the Company, and that is set forth as an
exhibit to the Registration Statement, or, any judgment or decree of
any governmental body, agency or court having jurisdiction over the
Company or NVIDIA California, except for any such contravention that
would not have a material adverse effect on the Company, and no
consent, approval, authorization or order of qualification with any
governmental body or agency was required for the performance by the
Company and NVIDIA California of its obligations under the Plan of
Merger except such as were obtained and except such consent, approval,
authorization, order or qualification, which if not obtained, would
not have a material adverse effect on the Company. The Merger is
effective under the laws of the State of California and the State of
Delaware.
(iv) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus
under the caption "Description of Capital Stock";
(v) the shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly
issued, fully paid and non-assessable; except as set forth in the
Prospectus, the Company has no outstanding options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations; and all
outstanding shares of capital stock and options and other rights to
acquire capital stock have been issued in compliance with the
registration and qualification provisions of all applicable securities
laws and were not issued in violation of any preemptive rights, rights
of first refusal or other similar rights;
(vi) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive rights, rights of
first refusal or similar rights;
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(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or bylaws of the Company or, to the best of such
counsel's knowledge, any agreement or other instrument binding upon
the Company that has been filed as an exhibit to the Registration
Statement, or, to such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction
over the Company, and no consent, approval, authorization or order of,
or qualification with, any governmental body or governmental agency is
required for the performance by the Company of its obligations under
this Agreement, except such as have been obtained under the Securities
Act and such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of the
Shares;
(ix) the statements (A) in the Prospectus under the captions
"Risk Factors--Legal Proceedings," "Dividend Policy," "Business--Legal
Proceedings," "Management--Employee Benefit Plans," "Certain
Transactions," "Description of Capital Stock," "Shares Eligible for
Future Sale" and "Underwriters" (to the extent of the description of
this Agreement) and (B) in the Registration Statement in Items 14 and
15, in each case insofar as such statements constitute summaries of
the legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters
referred to therein;
(x) such counsel does not know of any legal, regulatory or
governmental proceedings pending or overtly threatened to which the
Company is a party or to which any of the properties of the Company is
subject that are required under the Securities Act and the Rules to be
described in the Registration Statement or the Prospectus and are not
so described or of any statutes, regulations, contracts or other
documents to which the Company is a party or to which any of the
properties of the Company is subject that are required to be described
in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed
as required under the Securities Act and the Rules;
(xi) the Company is not an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended;
(xii) to such counsel's knowledge there is no legal or
beneficial owner of any securities of the Company who has any rights,
not effectively satisfied or waived, to require registration of any
shares of capital stock of the Company in connection with the filing
of the Registration Statement;
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<PAGE>
(xiii) such counsel is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data derived therefrom,
as to which such counsel need not express any opinion) comply as to
form in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder;
(xiv) such counsel (A) has no reason to believe that (except for
financial statements and schedules and other financial and statistical
data derived therefrom, as to which such counsel need not express any
belief) the Registration Statement and the prospectus included therein
at the time the Registration Statement became effective contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading and (B) has no reason to believe that (except
for financial statements and schedules and other financial and
statistical data derived therefrom, as to which such counsel need not
express any belief) the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(xv) to the best of such counsel's knowledge: (A) the
Registration Statement has become effective under the Securities Act,
no stop order proceedings with respect thereto have been instituted or
are pending or threatened under the Securities Act and nothing has
come to such counsel's attention to lead it to believe that such
proceedings are contemplated; and (B) any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b) under
the Securities Act has been made in the manner and within the time
period required by Rule 424(b); and
(xvi) the Shares to be sold under this Agreement to the
Underwriters are duly authorized for listing on the Nasdaq National
Market.
(d) The Underwriters shall have received on the Closing Date an
opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel for the Underwriters, dated the Closing Date, covering the
matters referred to in Sections 5(c)(vi), 5(c)(vii), 5(c)(ix) (but only
as to the statements in the Prospectus under "Description of Capital
Stock" and "Underwriters"), 5(c)(xiii) and 5(c)(xiv) above.
With respect to Section 5(c)(xiv) above, Cooley Godward LLP and Wilson
Sonsini Goodrich & Rosati, Professional Corporation may state that their
belief is based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are without
independent check or verification, except as specified.
The opinion of Cooley Godward LLP described in Section 5(c) above shall
be rendered to the Underwriters at the request of the Company and shall so
state therein.
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<PAGE>
(e) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from KPMG Peat Marwick LLP, independent public accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus; provided, however, that the letter delivered on the
Closing Date shall use a "cut-off date" not earlier than the date hereof.
(f) The "lock-up" agreements, each substantially in the form attached
hereto as Exhibit A, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Common Stock or certain other securities, delivered to you on
or before the date hereof, shall be in full force and effect on the Closing
Date.
All of the agreements, opinions, certificates and letters mentioned
above or elsewhere in this Agreement shall be deemed in compliance with the
provisions hereof only if Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel for the Underwriters, shall be reasonably satisfied that
they comply in form and scope.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares and an
opinion or opinions of Cooley Godward LLP in form and substance reasonably
satisfactory to Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel for the Underwriters.
6. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, four signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day
immediately following the date of this Agreement and during the period
mentioned in Section 6(c) below, as many copies of the Prospectus and any
supplements and amendments thereto or to the Registration Statement as you
may reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
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<PAGE>
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earnings statement covering the
twelve-month period ending January 31, 2000 that satisfies the provisions
of Section 11(a) of the Securities Act and the Rules thereunder.
(f) That in connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent
required by the National Association of Securities Dealers, Inc. (the
"NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. Morgan Stanley will notify
the Company as to which Participants will need to be so restricted. The
Company will direct the transfer agent to place stop transfer restrictions
upon such securities for such period of time.
(g) To pay all fees and disbursements of counsel incurred by the
Underwriters in connection with the Directed Share Program and stamp
duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program.
(h) To (i) enforce the terms of each Lock-up Agreement, (ii) issue
stop-transfer instructions to the transfer agent for the Common Stock with
respect to any transaction or contemplated transaction that would
constitute a breach of or default under the applicable Lock-up Agreement
and (iii) upon written request of Morgan Stanley, to release from the Lock-
up Agreements those shares of Common Stock held by those holders set forth
in such request. In addition, except with the prior written consent of
Morgan Stanley, the Company agrees (i) not to amend or terminate, or waive
any right under, any Lock-up Agreement, or take any other action that would
directly or indirectly have the same effect as an amendment or termination,
or waiver of any right under, any Lock-up Agreement, that would permit any
holder of shares of Common Stock, or securities convertible into or
exercisable or exchangeable for Common Stock,
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<PAGE>
to sell, make any short sale of, grant any option for the purchase of, or
otherwise transfer or dispose of, any of such shares of Common Stock or
other securities prior to the expiration of 180 days after the date of the
Prospectus, and (ii) not to consent to any sale, short sale, grant of an
option for the purchase of, or other disposition or transfer of shares of
Common Stock, or securities convertible into or exercisable or exchangeable
for Common Stock, subject to a Lock-up Agreement.
(i) To place a restrictive legend on any shares of Common Stock
acquired pursuant to the exercise, after the date hereof and prior to the
expiration of the 180-day period after the date of the Prospectus, of any
option granted under the Option Plan, which legend shall restrict the
transfer of such shares prior to the expiration of such 180-day period. In
addition, the Company agrees that, without the prior written consent of
Morgan Stanley, it will not release any shareholder or option holder from
the market standoff provision imposed by the Company pursuant to the terms
of the Option Plan earlier than 180 days after the date of the Prospectus.
(j) Prior to issuing any press release regarding the operating
results or financial condition with respect to any of the Company's first
three fiscal quarters in fiscal year 2000, and prior to filing a
Quarterly Report on Form 10-Q relating to any of such fiscal quarters, to
retain KPMG Peat Marwick LLP or other independent public accountants of
recognized national standing who shall review, in accordance with AICPA
Statement on Auditing Standards No. 71, the Company's unaudited
consolidated financial statements at the end of each such fiscal quarter;
provided, however, that the Company's obligations under this covenant may
terminate after the third quarter of fiscal year 2000 at the discretion
of the Company's Board of Directors if the Company's Board of Directors
determines in good faith that adequate financial controls are in place.
Furthermore, the Company covenants with Morgan Stanley that the
Company will comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the
Directed Shares are offered in connection with the Directed Share Program.
7. EXPENSES. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel and the Company's accountants in connection
with the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the quantities hereinabove specified, (ii) all
costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii) the
cost of printing or producing any Blue Sky or Legal Investment memorandum in
connection with the offer and sale of the Shares under securities laws of
various states and other jurisdictions and all expenses in
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<PAGE>
connection with the qualification of the Shares for offer and sale under state
securities laws as provided in paragraph (d) of Section 6 hereof, including
filing fees and the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky or Legal Investment memorandum, (iv) all filing fees and the reasonable
fees and disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Shares by the NASD, (v)
all fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all costs
and expenses incident to listing the Shares on the Nasdaq National Market, (vi)
the cost of printing certificates representing the Shares, (vii) the costs and
charges of any transfer agent, registrar or depositary, (viii) the costs and
expenses of the Company relating to investor presentations on any "road show"
undertaken in connection with the marketing of the offering of the Shares,
including, without limitation, expenses associated with the production of road
show slides and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers of the
Company and any such consultants, and the cost of any aircraft chartered in
connection with the road show, (ix) all expenses in connection with any offer
and sale of the Shares outside of the United States, including filing fees and
the reasonable fees and disbursements of counsel for the Underwriters in
connection with offers and sales outside of the United States, and (x) all other
costs and expenses incident to the performance of the obligations of the Company
hereunder for which provision is not otherwise made in this Section 7. It is
understood, however, that except as otherwise provided in this Section 7,
Section 8 entitled "Indemnity and Contribution", and the last paragraph of
Section 10 below, the Underwriters will pay all of their costs and expenses,
including fees and disbursements of their counsel, stock transfer taxes payable
on resale of any of the Shares by them, and any advertising expenses connected
with any offers they may make.
8. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein; provided, however, that
-------- -------
the foregoing indemnity agreement with respect to any preliminary prospectus
shall not inure to the benefit of any Underwriter from whom the person asserting
any such losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended or supplemented) would have cured
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<PAGE>
the defect giving rise to such losses, claims, damages or liabilities, unless
such failure is the result of noncompliance by the Company with Section 6(a)
hereof.
(b) The Company agrees to indemnify and hold harmless Morgan Stanley
and each person, if any, who controls, is controlled by, or is under common
control with Morgan Stanley within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act ("MORGAN STANLEY ENTITIES"),
from and against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) (i) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the prospectus wrapper material prepared by or with the consent of the
Company for distribution in foreign jurisdictions in connection with the
Directed Share Program attached to the Prospectus or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein, when
considered in conjunction with the Prospectus or any applicable preliminary
prospectus, not misleading; (ii) caused by the failure of any Participant to pay
for and accept delivery of the shares which, immediately following the
effectiveness of the Registration Statement, were subject to a properly
confirmed agreement to purchase; provided that the Morgan Stanley Entities shall
use all reasonable efforts to mitigate such damages; or (iii) related to,
arising out of, or in connection with the Directed Share Program, provided that,
the Company shall not be responsible under this subparagraph (iii) for any
losses, claim, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the bad faith or gross
negligence of Morgan Stanley Entities.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the directors of the Company, the officers of the
Company who sign the Registration Statement and each person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 8(a), 8(b) or 8(c), such person (the "INDEMNIFIED
PARTY") shall promptly notify the person against whom such indemnity may be
sought (the "INDEMNIFYING PARTY") in writing and the Indemnifying Party, upon
request of the Indemnified Party, shall retain counsel reasonably satisfactory
to the Indemnified Party to represent the Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such
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<PAGE>
counsel shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
It is understood that the Indemnifying Party shall not, in respect of the legal
expenses of any Indemnified Party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the fees and expenses of
more than one separate firm (in addition to any local counsel) for all
Underwriters and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act and (ii) the fees and expenses of more than one separate firm (in addition
to any local counsel) for the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either such Section, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Underwriters and such control persons of any Underwriters, such firm shall be
designated in writing by Morgan Stanley. In the case of any such separate firm
for the Company, and such directors, officers and control persons of the
Company, such firm shall be designated in writing by the Company.
Notwithstanding anything contained herein to the contrary, if indemnity may be
sought pursuant to Section 8(b) hereof in respect of such action or proceeding,
then in addition to such separate firm for the Indemnified Parties, the
Indemnifying Party shall be liable for the reasonable fees and expenses of not
more than one separate firm (in addition to any local counsel) for Morgan
Stanley and all persons, if any, who control Morgan Stanley within the meaning
of either Section 15 of the Act or Section 20 of the Exchange Act for the
defense of any losses, claims, damages and liabilities arising out of the
Directed Share Program. The Indemnifying Party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an Indemnified Party shall have requested
an Indemnifying Party to reimburse the Indemnified Party for fees and expenses
of counsel as contemplated by the second and third sentences of this paragraph,
the Indemnifying Party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such Indemnifying Party of the
aforesaid request and (ii) such Indemnifying Party shall not have reimbursed the
Indemnified Party in accordance with such request prior to the date of such
settlement. No Indemnifying Party shall, without the prior written consent of
the Indemnified Party, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Party is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Party,
unless such settlement includes an unconditional release of such Indemnified
Party from all liability on claims that are the subject matter of such
proceeding.
(e) To the extent the indemnification provided for in Section 8(a),
8(b) or 8(c) is unavailable to an Indemnified Party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then each
Indemnifying Party under such paragraph, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Indemnifying Party or parties on the one hand and the
Indemnified
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Party or parties on the other hand from the offering of the Shares or (ii) if
the allocation provided by clause 8(e)(i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause 8(e)(i) above but also the relative fault of the
Indemnifying Party or parties on the one hand and of the Indemnified Party or
parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other hand in connection
with the offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by the Company and the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in the
table on the cover of the Prospectus, bear to the aggregate Public Offering
Price of the Shares. The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective obligations to contribute
pursuant to this Section 8 are several in proportion to the respective number of
Shares they have purchased hereunder, and not joint.
(f) The Company and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 8(e). The amount paid or
payable by an Indemnified Party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 8 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any Indemnified Party at law or in equity.
(g) The indemnity and contribution provisions contained in this
Section 8 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, or the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of the
Shares.
-20-
<PAGE>
9. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the NASD, the Chicago
Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board
of Trade, (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities in New York shall have been declared
by either federal or New York State authorities or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in your judgment, is material and
adverse and (b) in the case of any of the events specified in clauses 9(a)(i)
through 9(a)(iv), such event, singly or together with any other such event,
makes it, in your judgment, impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus.
10. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I bears to the
aggregate number of Firm Shares set forth opposite the names of all such non-
defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided, however, that in no event
shall the number of Shares that any Underwriter has agreed to purchase pursuant
to this Agreement be increased pursuant to this Section 10 by an amount in
excess of one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Shares to be purchased, and arrangements satisfactory
to you and the Company for the purchase of such Firm Shares are not made within
36 hours after such default, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriter or the Company. In any such case,
either you or the Company shall have the right to postpone the Closing Date, but
in no event for longer than seven days, in order that the required changes, if
any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. If, on the Option Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Additional Shares
and the aggregate number of Additional Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
-21-
<PAGE>
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part the Company to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
11. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
13. HEADINGS. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-22-
<PAGE>
Very truly yours,
NVIDIA CORPORATION
By:___________________________
Name:
Title:
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
Prudential Securities Incorporated
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:__________________________________
Name:
Title:
[UNDERWRITING AGREEMENT]
<PAGE>
SCHEDULE I
UNDERWRITER NUMBER OF FIRM SHARES
TO BE PURCHASED
- ---------------------------- ------------------------
Morgan Stanley & Co. Incorporated
Hambrecht & Quest LLC
Prudential Securities Incorporated
[NAMES OF OTHER UNDERWRITERS]
---------
Total...........3,500,000
=========
<PAGE>
EXHIBIT A
***Confirm that the Form below is the one sent to stockholders***
FORM OF LOCK-UP AGREEMENT
________________, 1998
Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
Prudential Securities Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("MORGAN STANLEY") proposes to enter into an Underwriting Agreement (the
"UNDERWRITING AGREEMENT") with NVIDIA Corporation, a California corporation
(together with any successor Delaware corporation, the "COMPANY"), providing for
the public offering (the "PUBLIC OFFERING") by the several Underwriters,
including Morgan Stanley (the "UNDERWRITERS"), of __________ shares (the
"SHARES") of the Common Stock, $0.001 par value per share, of the Company (the
"COMMON STOCK").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 180 days after the date of the final prospectus
relating to the Public Offering (the "PROSPECTUS"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
Common Stock, whether any such transaction described in clause (1) or (2) above
is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise. The foregoing sentence shall not apply to (a) the sale of any
Shares to the Underwriters pursuant to the Underwriting Agreement or (b)
transactions relating to shares of Common Stock or other securities acquired in
open market transactions after the completion of the Public Offering, (c) as a
bona fide gift or gifts, (d) by will or intestacy to the undersigned's immediate
family or to a trust the beneficiaries of which are exclusively the undersigned
and/or a member or members of his or her immediate family and/or a charity, (e)
as a distribution to limited partners or shareholders of the undersigned, in
each case provided that any gift, transfer or distribution pursuant to clause
(c), (d) or (e) above shall in each case be conditioned upon such donee,
transferee or distributee executing and delivering a copy of a Lock-up Agreement
to Morgan Stanley & Co. Incorporated. In addition, the undersigned agrees that,
without the prior written consent
<PAGE>
Morgan Stanley & Co. Incorporated
Page 2
of Morgan Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 180 days after the date of the
Prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.
The undersigned hereby acknowledges that this agreement is valid and
binding notwithstanding any prior agreements relating to any shares of the
Company owned by the undersigned and further agrees and consents to the entry of
stop-transfer instructions with the Company's transfer agent against the
transfer shares of Common Stock held by the undersigned except in compliance
with the terms and conditions of this lock-up agreement. The undersigned also
understands that the Company and the Underwriters will proceed with the Public
Offering in reliance on this lock-up agreement. Whether or not the Public
Offering actually occurs depends on a number of factors, including market
conditions. Any Public Offering will only be made pursuant to an Underwriting
Agreement, the terms of which are subject to negotiation between the Company and
the Underwriters.
Very truly yours,
_____________________________________
(Name of Stockholder)
_____________________________________
(Signature of Authorized Signatory)
_____________________________________
(Print Name and Title, if Stockholder
is not an individual)
[LOCK-UP AGREEMENT]
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
NVIDIA CORPORATION
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article I Offices............................................................................. 1
Section 1. Registered Office.............................................................. 1
Section 2. Other Offices.................................................................. 1
Article II Corporate Seal..................................................................... 1
Section 3. Corporate Seal................................................................. 1
Article III Stockholders' Meetings............................................................ 1
Section 4. Place Of Meetings.............................................................. 1
Section 5. Annual Meetings................................................................ 1
Section 6. Special Meetings............................................................... 3
Section 7. Notice Of Meetings............................................................. 4
Section 8. Quorum......................................................................... 4
Section 9. Adjournment And Notice Of Adjourned Meetings................................... 4
Section 10. Voting Rights.................................................................. 5
Section 11. Joint Owners Of Stock.......................................................... 5
Section 12. List Of Stockholders........................................................... 5
Section 13. Action Without Meeting......................................................... 5
Section 14. Organization................................................................... 6
Article IV Directors.......................................................................... 7
Section 15. Number And Term Of Office...................................................... 7
Section 16. Powers......................................................................... 7
Section 17. Classes Of Directors........................................................... 7
Section 18. Vacancies...................................................................... 7
Section 19. Resignation.................................................................... 8
Section 20. Removal........................................................................ 8
Section 21. Meetings....................................................................... 8
(a) Annual Meetings........................................................................ 8
(b) Regular Meetings....................................................................... 8
(c) Special Meetings....................................................................... 8
(d) Telephone Meetings..................................................................... 9
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
(e) Notice Of Meetings..................................................................... 9
(f) Waiver Of Notice....................................................................... 9
Section 22. Quorum And Voting.............................................................. 9
Section 23. Action Without Meeting......................................................... 9
Section 24. Fees And Compensation.......................................................... 10
Section 25. Committees..................................................................... 10
(a) Executive Committee.................................................................... 10
(b) Other Committees....................................................................... 10
(c) Term................................................................................... 10
(d) Meetings............................................................................... 11
Section 26. Organization................................................................... 11
Article V Officers............................................................................ 11
Section 27. Officers Designated............................................................ 11
Section 28. Tenure And Duties Of Officers.................................................. 12
(a) General................................................................................ 12
(b) Duties Of Chairman Of The Board Of Directors........................................... 12
(c) Duties Of President.................................................................... 12
(d) Duties Of Vice Presidents.............................................................. 12
(e) Duties Of Secretary.................................................................... 12
(f) Duties Of Chief Financial Officer...................................................... 12
Section 29. Delegation Of Authority........................................................ 13
Section 30. Resignations................................................................... 13
Section 31. Removal........................................................................ 13
Article VI Execution Of Corporate Instruments And Voting Of Securities Owned By The
Corporation............................................................................ 13
Section 32. Execution Of Corporate Instruments............................................. 13
Section 33. Voting Of Securities Owned By The Corporation.................................. 14
Article VII Shares Of Stock................................................................... 14
Section 34. Form And Execution Of Certificates............................................. 14
</TABLE>
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 35. Lost Certificates.............................................................. 15
Section 36. Transfers...................................................................... 15
Section 37. Fixing Record Dates............................................................ 15
Section 38. Registered Stockholders........................................................ 15
Article VIII Other Securities Of The Corporation.............................................. 16
Section 39. Execution Of Other Securities.................................................. 16
Article IX Dividends.......................................................................... 16
Section 40. Declaration Of Dividends....................................................... 16
Section 41. Dividend Reserve............................................................... 16
Article X Fiscal Year......................................................................... 17
Section 42. Fiscal Year.................................................................... 17
Article XI Indemnification.................................................................... 17
Section 43. Indemnification Of Directors, Executive Officers, Other Officers,
Employees And Other Agents............................................................. 17
(a) Directors And Executive Officers....................................................... 17
(b) Other Officers, Employees and Other Agents............................................. 17
(c) Expenses............................................................................... 17
(d) Enforcement............................................................................ 18
(e) Non-Exclusivity Of Rights.............................................................. 18
(f) Survival Of Rights..................................................................... 19
(g) Insurance.............................................................................. 19
(h) Amendments............................................................................. 19
(i) Saving Clause.......................................................................... 19
(j) Certain Definitions.................................................................... 19
Article XII Notices........................................................................... 20
Section 44. Notices........................................................................ 20
(a) Notice To Stockholders................................................................. 20
(b) Notice To Directors.................................................................... 20
(c) Affidavit Of Mailing................................................................... 20
</TABLE>
iii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
(d) Time Notices Deemed Given.............................................................. 20
(e) Methods Of Notice...................................................................... 20
(f) Failure To Receive Notice.............................................................. 21
(g) Notice To Person With Whom Communication Is Unlawful................................... 21
(h) Notice To Person With Undeliverable Address............................................ 21
Article XIII Amendments....................................................................... 21
Section 45. Amendments..................................................................... 21
Right Of First Refusal......................................................................... 22
Section 46. Right Of First Refusal......................................................... 22
Article XIV Loans To Officers................................................................. 24
Section 47. Loans To Officers.............................................................. 24
</TABLE>
iv.
<PAGE>
BYLAWS
OF
NVIDIA CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal-
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(A) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors. Nominations of persons
for election to the Board of Directors of the corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the direction of the Board of Directors; or (iii)
by any stockholder of the corporation who was a stockholder of record at the
time of giving of notice provided for in the following paragraph, who is
entitled to vote at the meeting and who complied with the notice procedures
set forth in Section 5.
(B) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting.
1.
<PAGE>
For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (iii) of Section 5(a) of these
Bylaws, (i) the stockholder must have given timely notice thereof in writing
to the Secretary of the corporation, (ii) such other business must be a proper
matter for stockholder action under the General Corporation Law of Delaware,
(iii) if the stockholder, or the beneficial owner on whose behalf any such
proposal or nomination is made, has provided the corporation with a
Solicitation Notice (as defined in this Section 5(b)), such stockholder or
beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a
proxy statement and form of proxy to holders of a percentage of the
corporation's voting shares reasonably believed by such stockholder or
beneficial owner to be sufficient to elect the nominee or nominees proposed to
be nominated by such stockholder, and must, in either case, have included in
such materials the Solicitation Notice, and (iv) if no Solicitation Notice
relating thereto has been timely provided pursuant to this section, the
stockholder or beneficial owner proposing such business or nomination must
have solicited a number of proxies sufficient to have required the delivery of
such a Solicitation Notice under this Section 5. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive offices
of the corporation not later than the close of business on the ninetieth
(90th) day nor earlier than the close of business on the one hundred twentieth
(120th) day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event the date of the annual meeting
is advanced more than thirty (30) days prior to or delayed by more than thirty
(30) days after the anniversary of the preceding year's annual meeting, notice
by the stockholder to be timely must be so delivered not earlier than the
close of business on the one hundred twentieth (120th) day prior to such
annual meeting and not later than the close of business on the later of the
ninetieth (90th) day prior to such annual meeting or the tenth (10th) day
following the day on which public announcement of the date of such meeting is
first made. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (A) as to
each person whom the stockholder proposed to nominate for election or
reelection as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (i) the name
and address of such stockholder, as they appear on the corporation's books and
of such beneficial owner, (ii) the class and number of shares of the
corporation which are owned beneficially and of record by such stockholder and
such beneficial owner, and (iii) whether either such stockholder or beneficial
owner intends to deliver a proxy statement and form of proxy to holders of, in
the case of the proposal, at least the percentage of the corporation's voting
shares required under applicable law to carry the proposal or, in the case of
a nomination or nominations, a sufficient number of holders of the
corporation's voting shares to elect such nominee or nominees (an affirmative
statement of such intent, a "Solicitation Notice") by the stockholder.
(C) Notwithstanding anything in the second sentence of Section 5(b)
of these Bylaws to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least one
hundred (100) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(D) Only persons who are nominated in accordance with the procedures
set forth in this Section 5 shall be eligible to serve as directors, and only
such business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Section 5. Except as otherwise provided by law, the Chairman of the meeting
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made, or proposed, as the case may
be, in accordance with the procedures set forth in these Bylaws and, if any
proposed nomination or business is not in compliance with these Bylaws, to that
such defective proposal or nomination shall not be presented for stockholder
action at the meeting and
2.
<PAGE>
shall be disregarded.
(E) Notwithstanding the foregoing provisions of this Section 5, in
order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders
must provide notice as required by the regulations promulgated under the 1934
Act. Nothing in these Bylaws shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the corporation proxy
statement pursuant to Rule 14a-8 under the 1934 Act.
(F) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(A) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors, shall fix. At any time or times that the
corporation is subject to Section 2115(b) of the California General
Corporation Law ("CGCL"), stockholders holding five percent (5%) or more of
the outstanding shares shall have the right to call a special meeting of
stockholders as set forth in Section 18(c) herein.
(B) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within
one hundred (100) days after the receipt of the
3.
<PAGE>
request, the person or persons requesting the meeting may set the time and place
of the meeting and give the notice. Nothing contained in this paragraph (b)
shall be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(C) Nominations of persons for election to the Board of Directors may be
made at a special meeting of stockholders at which directors are to be elected
pursuant to the corporation's notice of meeting (i) by or at the direction of
the Board of Directors or (ii) by any stockholder of the corporation who is a
stockholder of record at the time of giving notice provided for in these Bylaws
who shall be entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 6(c). In the event the corporation calls a
special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder may nominate a person
or persons (as the case may be), for election to such position(s) as specified
in the corporation's notice of meeting, if the stockholder's notice required by
Section 5(b) of these Bylaws shall be delivered to the Secretary at the
principal executive offices of the corporation not earlier than the close of
business on the one hundred twentieth (120th) day prior to such special
meeting and not later than the close of business on the later of the ninetieth
(90th) day prior to such meeting or the tenth (10th) day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the votes cast, including abstentions, by the
holders of shares of such class or classes or series shall be the act of such
class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of
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the adjourned meeting if the time and place thereof are announced at the meeting
at which the adjournment is taken. At the adjourned meeting, the corporation may
transact any business which might have been transacted at the original meeting.
If the adjournment is for more than thirty (30) days or if after the adjournment
a new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(A) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a
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meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
(B) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(C) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of the State of Delaware if such
action had been voted on by stockholders at a meeting thereof, then the
certificate filed under such section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that written
consent has been given in accordance with Section 228 of the General Corporation
Law of Delaware.
(D) Notwithstanding the foregoing, no such action by written consent
may be taken following the closing of the initial public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "1933 Act"), covering the offer and sale of Common Stock of the corporation
(the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(A) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(B) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and
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constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
Section 17. CLASSES OF DIRECTORS. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes designated as Class I, Class II
and Class III. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class I directors shall expire and Class I directors
shall be elected for a full term of three years. At the second annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual
meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES.
(A) Unless otherwise provided in the Certificate of Incorporation, any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, be filled only by the affirmative
vote of a majority of the directors then in office, even though less than a
quorum of
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the Board of Directors. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the director
for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this Bylaw in the case of the death,
removal or resignation of any director.
(B) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies
or newly created directorships, or to replace the directors chosen by the
directors then in offices as aforesaid, which election shall be governed by
Section 211 of the Delaware General Corporation Law.
(C) At any time or times that the corporation is subject to Section
2115(b) of the CGCL, if, after the filling of any vacancy, the directors then
in office who have been elected by stockholders shall constitute less than a
majority of the directors then in office, then
(1) Any holder or holders of an aggregate of five percent (5%)
or more of the total number of shares at the time outstanding having the right
to vote for those directors may call a special meeting of stockholders; or
(2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in
accordance with Section 305(c) of the CGCL. The term of office of any director
shall terminate upon that election of a successor.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL. Subject to the rights of the holders of any series
of Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all the then-outstanding shares of the Voting Stock.
SECTION 21. MEETINGS.
(A) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(B) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(C) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors.
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(D) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(E) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by electronic
mail or other electronic means, during normal business hours, at least twenty-
four (24) hours before the date and time of the meeting, or sent in writing to
each director by first class mail, charges prepaid, at least three (3) days
before the date of the meeting. Notice of any meeting may be waived in writing
at any time before or after the meeting and will be waived by any director by
attendance thereat, except when the director attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
(F) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(A) Unless the Certificate of Incorporation requires a greater number
and except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation, a
quorum of the Board of Directors shall consist of a majority of the exact number
of directors fixed from time to time by the Board of Directors in accordance
with the Certificate of Incorporation; provided, however, at any meeting whether
a quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors, without notice other than by announcement at the
meeting.
(B) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing,
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and such writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(A) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by
Delaware the General Corporation Law to be submitted to stockholders for
approval, or (ii) adopting, amending or repealing any bylaw of the corporation.
(B) OTHER COMMITTEES. The Board of Directors may, from time to time,
appoint such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall any such committee have the powers denied to the Executive
Committee in these Bylaws.
(C) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to the provisions of subsections (a)
or (b) of this Bylaw may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
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(D) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
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SECTION 28. TENURE AND DUTIES OF OFFICERS.
(A) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(B) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(C) DUTIES OF PRESIDENT. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the corporation,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(D) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(E) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(F) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as
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required by the Board of Directors or the President. The Chief Financial
Officer, subject to the order of the Board of Directors, shall have the custody
of all funds and securities of the corporation. The Chief Financial Officer
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time. The President may direct the
Treasurer or any Assistant Treasurer, or the Controller or any Assistant
Controller to assume and perform the duties of the Chief Financial Officer in
the absence or disability of the Chief Financial Officer, and each Treasurer and
Assistant Treasurer and each Controller and Assistant Controller shall perform
other duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by
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the Chairman of the Board of Directors, or the President or any Vice President,
and by the Secretary or Treasurer or any Assistant Secretary or Assistant
Treasurer. All other instruments and documents requiring the corporate
signature, but not requiring the corporate seal, may be executed as aforesaid or
in such other manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers,
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designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(A) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(B) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix, in
advance, a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
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ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
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ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(A) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and executive
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or executive officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (d).
(B) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the Delaware General Corporation Law.
(C) EXPENSES. The corporation shall advance to any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding,
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whether civil, criminal, administrative or investigative, if a determination is
reasonably and promptly made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to the proceeding, or (ii)
if such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, that the facts known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation.
(D) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct.
(E) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
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(F) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(G) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(H) AMENDMENTS. Any repeal or modification of this Bylaw shall only
be prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(I) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(J) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer,
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officer, employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(A) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(B) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(C) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(D) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(E) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
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(F) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(G) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(H) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock. The
Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.
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ARTICLE XIII
RIGHT OF FIRST REFUSAL
SECTION 46. RIGHT OF FIRST REFUSAL. No stockholder shall sell, assign,
pledge, or in any manner transfer any of the shares of stock of the corporation
or any right or interest therein, whether voluntarily or by operation of law, or
by gift or otherwise, except by a transfer which meets the requirements
hereinafter set forth in this bylaw:
(A) If the stockholder desires to sell or otherwise transfer any of
his shares of stock, then the stockholder shall first give written notice
thereof to the corporation. The notice shall name the proposed transferee and
state the number of shares to be transferred, the proposed consideration, and
all other terms and conditions of the proposed transfer.
(B) For thirty (30) days following receipt of such notice, the
corporation shall have the option to purchase all (but not less than all) of the
shares specified in the notice at the price and upon the terms set forth in such
notice; provided, however, that, with the consent of the stockholder, the
corporation shall have the option to purchase a lesser portion of the shares
specified in said notice at the price and upon the terms set forth therein. In
the event of a gift, property settlement or other transfer in which the proposed
transferee is not paying the full price for the shares, and that is not
otherwise exempted from the provisions of this Section 46, the price shall be
deemed to be the fair market value of the stock at such time as determined in
good faith by the Board of Directors. In the event the corporation elects to
purchase all of the shares or, with consent of the stockholder, a lesser portion
of the shares, it shall give written notice to the transferring stockholder of
its election and settlement for said shares shall be made as provided below in
paragraph (d).
(C) The corporation may assign its rights hereunder.
(D) In the event the corporation and/or its assignee(s) elect to
acquire any of the shares of the transferring stockholder as specified in said
transferring stockholder's notice, the Secretary of the corporation shall so
notify the transferring stockholder and settlement thereof shall be made in cash
within thirty (30) days after the Secretary of the corporation receives said
transferring stockholder's notice; provided that if the terms of payment set
forth in said transferring stockholder's notice were other than cash against
delivery, the corporation and/or its assignee(s) shall pay for said shares on
the same terms and conditions set forth in said transferring stockholder's
notice.
(E) In the event the corporation and/or its assignees(s) do not elect
to acquire all of the shares specified in the transferring stockholder's notice,
said transferring stockholder may, within the sixty-day period following the
expiration of the option rights granted to the corporation and/or its
assignees(s) herein, transfer the shares specified in said transferring
stockholder's notice which were not acquired by the corporation and/or its
assignees(s) as specified in said transferring stockholder's notice. All shares
so sold by said transferring stockholder shall continue to be subject to the
provisions of this bylaw in the same manner as before said transfer.
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(F) Anything to the contrary contained herein notwithstanding, the
following transactions shall be exempt from the provisions of this bylaw:
(1) A stockholder's transfer of any or all shares held either
during such stockholder's lifetime or on death by will or intestacy to such
stockholder's immediate family or to any custodian or trustee for the account of
such stockholder or such stockholder's immediate family or to any limited
partnership of which the shareholder, members of such shareholder's immediate
family or any trust for the account of such shareholder or such shareholder's
immediate family will be the general of limited partner(s) of such partnership.
"Immediate family" as used herein shall mean spouse, lineal descendant, father,
mother, brother, or sister of the stockholder making such transfer.
(2) A stockholder's bona fide pledge or mortgage of any shares
with a commercial lending institution, provided that any subsequent transfer of
said shares by said institution shall be conducted in the manner set forth in
this bylaw.
(3) A stockholder's transfer of any or all of such stockholder's
shares to the corporation or to any other stockholder of the corporation.
(4) A stockholder's transfer of any or all of such stockholder's
shares to a person who, at the time of such transfer, is an officer or director
of the corporation.
(5) A corporate stockholder's transfer of any or all of its
shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate stockholder, or pursuant to a sale of all or substantially all of the
stock or assets of a corporate stockholder.
(6) A corporate stockholder's transfer of any or all of its
shares to any or all of its stockholders.
(7) A transfer by a stockholder which is a limited or general
partnership to any or all of its partners or former partners.
In any such case, the transferee, assignee, or other recipient shall receive and
hold such stock subject to the provisions of this bylaw, and there shall be no
further transfer of such stock except in accord with this bylaw.
(G) The provisions of this bylaw may be waived with respect to any
transfer either by the corporation, upon duly authorized action of its Board of
Directors, or by the stockholders, upon the express written consent of the
owners of a majority of the voting power of the corporation (excluding the votes
represented by those shares to be transferred by the transferring stockholder).
This bylaw may be amended or repealed either by a duly authorized action of the
Board of Directors or by the stockholders, upon the express written consent of
the owners of a majority of the voting power of the corporation.
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(H) Any sale or transfer, or purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this bylaw are strictly observed and followed.
(I) The foregoing right of first refusal shall terminate on either of
the following dates, whichever shall first occur:
(1) On February 16, 2008; or
(2) Upon the date securities of the corporation are first
offered to the public pursuant to a registration statement filed with, and
declared effective by, the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended.
(J) The certificates representing shares of stock of the corporation
shall bear on their face the following legend so long as the foregoing right of
first refusal remains in effect:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION
AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE
CORPORATION."
ARTICLE XIV
LOANS TO OFFICERS
SECTION 47. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
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EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
NVIDIA CORPORATION, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, hereby certifies
as follows:
1. The name of the corporation is NVIDIA Corporation.
2. The corporation's original Certificate of Incorporation was filed with
the Secretary of State on __________________, 1998.
3. The Amended and Restated Certificate of Incorporation of this
corporation, in the form attached hereto as Exhibit A, has been duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware by the Board of Directors and by the
stockholders of the corporation.
4. The Amended and Restated Certificate of Incorporation so adopted reads
in full as set forth in Exhibit A attached hereto and hereby incorporated by
reference.
IN WITNESS WHEREOF, NVIDIA Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by its Chairman of the Board
and Chief Executive Officer and attested to by its Secretary this ____ day of
______________, 1998.
_____________________________________
JEN-HSUN HUANG
President and Chief Executive Officer
ATTEST:
_____________________________
CHRISTINE HOBERG
Secretary
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NVIDIA CORPORATION
I.
The name of this corporation is NVIDIA Corporation.
II.
The address of the registered office of the corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent, and the name of
the registered agent of the corporation in the State of Delaware at such address
is Incorporating Services.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is Two Hundred Two
Million (202,000,000) shares. Two Hundred Million (200,000,000) shares shall be
Common Stock, each having a par value of one-tenth of one cent ($.001). Two
Million (2,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001).
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
1.
<PAGE>
A. 1. The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, and to any
restrictions or limitations of applicable law following the closing of the
initial public offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "1933 Act"), covering the offer
and sale of Common Stock to the public (the "Initial Public Offering"), the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the
Initial Public Offering, the term of office of the Class I directors shall
expire and Class I directors shall be elected for a full term of three years.
At the second annual meeting of stockholders following the closing of the
Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the closing of the
Initial Public Offering, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three
years. At each succeeding annual meeting of stockholders, directors shall be
elected for a full term of three years to succeed the directors of the class
whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. Subject to the rights of the holders of any series of Preferred
Stock, the Board of Directors or any individual director may be removed from
office at any time (i) with cause by the affirmative vote of the holders of a
majority of the voting power of all the then outstanding shares of voting stock
of the Corporation, entitled to vote at an election of directors (the "Voting
Stock") or (ii) without cause by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of the then
outstanding shares of Voting Stock.
4. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
5. In the event that Section 2115(a) of the California Corporations
Code is applicable to this corporation, then the following shall apply:
A. Every stockholder entitled to vote in any election of
directors of this corporation may cumulate such stockholder's votes and give one
candidate a number of
2.
<PAGE>
votes equal to the number of directors to be elected multiplied by the number of
votes to which the stockholder's shares are otherwise entitled, or distribute
the stockholder's votes on the same principle among as many candidates as such
stockholder thinks fit;
B. No stockholder, however, may cumulate such stockholder's
votes for one or more candidates unless (i) the names of such candidates have
been properly placed in nomination, in accordance with the Bylaws of the
corporation, prior to the voting, (ii) the stockholder has given advance notice
to the corporation of the intention to cumulative votes pursuant to the Bylaws,
and (iii) the stockholder has given proper notice to the other stockholders at
the meeting, prior to voting, of such stockholder's intention to cumulate such
stockholder's votes; and
C. If any stockholder has given proper notice, all stockholders
may cumulate their votes for any candidates who have been properly placed in
nomination. The candidates receiving the highest number of votes of the shares
entitled to be voted for them up to the number of directors to be elected by
such shares shall be declared elected.
B. 1. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of voting stock of the Corporation entitled to vote
at an election of directors (the "Voting Stock"). The Board of Directors shall
also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the Corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws and following the closing of the Initial Public Offering no action
shall be taken by the stockholders by written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
VI.
A. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
3.
<PAGE>
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI
and VII.
4.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF COOLEY GODWARD LLP]
December 23, 1998
NVIDIA Corporation
3535 Monroe Street
Santa Clara, CA 95051
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by NVIDIA Corporation (the "Company") of a Registration
Statement on Form S-1 (the "Registration Statement"), with the Securities and
Exchange Commission (the "Commission"), including a related prospectus to be
filed with the Commission pursuant to Rule 424(b) of Regulation C (the
"Prospectus") promulgated under the Securities Act of 1933, as amended, and
the underwritten public offering of up to 4,025,000 shares of common stock,
including 525,000 shares of common stock for which the Underwriters have been
granted an over-allotment option (the "Common Stock").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Certificate of
Incorporation and By-laws and the originals or copies certified to our
satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below, and (ii) assumed that the shares of the
Common Stock will be sold by the Underwriters at a price established by the
Pricing Committee of the Company's Board of Directors.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the
Registration Statement and related Prospectus, will be validly issued, fully
paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in
the Prospectus included in the Registration Statement and to the filing of
this opinion as an exhibit to the Registration Statement.
Very truly yours,
Cooley Godward LLP
/s/ Eric C. Jensen
_____________________
By: Eric C. Jensen
<PAGE>
EXHIBIT 10.2
NVIDIA CORPORATION
1998 EQUITY INCENTIVE PLAN
ADOPTED FEBRUARY 17, 1998
AMENDED MARCH 17, 1998
APPROVED BY SHAREHOLDERS APRIL 6, 1998
AMENDED DECEMBER 7, 1998
APPROVED BY SHAREHOLDERS _______________, 1998
TERMINATION DATE: FEBRUARY 16, 2008
1. PURPOSES.
(A) The Plan is an amendment and restatement of the Company's existing
Equity Incentive Plan adopted May 21, 1993 (the "Prior Plan"). The Prior Plan
hereby is amended and restated in its entirety as the 1998 Equity Incentive Plan
and shall become effective on the date of approval of the Plan by the Board (the
"Effective Date"). No options shall be granted under the Prior Plan from and
after the Effective Date. The terms of the Prior Plan (other than the aggregate
number of shares issuable thereunder) shall remain in effect and apply to all
options granted pursuant to the Prior Plan.
(B) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, and (iv) rights to purchase
restricted stock.
(C) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(D) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.
2. DEFINITIONS.
(A) Affiliate means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(B) Board means the Board of Directors of the Company.
(C) Code means the Internal Revenue Code of 1986, as amended.
(D) Common Stock means the common stock of the Company.
1.
<PAGE>
(E) Committee means a Committee appointed by the Board in accordance with
subsection 3(c) of the Plan.
(F) Company means NVIDIA Corporation.
(G) Consultant means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors. The term "Consultant" shall include
members of the Board of Directors of an Affiliate.
(H) Continuous Service means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant or a Director of an Affiliate will not
constitute an interruption of Continuous Service as an Employee. The Board or
the chief executive officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of: (i) any leave of absence approved by the Board or the chief executive
officer of the Company, including sick leave, military leave, or any other
personal leave; or (ii) transfers between the Company, its Affiliates or their
successors.
(I) Covered Employee means the Chief Executive Officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to shareholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(J) Director means a member of the Board.
(K) Diluted Shares Outstanding means, as of any date, (i) the number of
outstanding shares of Common Stock of the Company on such Calculation Date (as
defined in Section 4(a) herein), plus (ii) the number of shares of Common Stock
issuable upon such Calculation Date assuming the conversion of all outstanding
Preferred Stock and convertible notes, plus (iii) the additional number of
dilutive Common Stock equivalent shares outstanding as the result of any options
or warrants outstanding during the fiscal year, calculated using the treasury
stock method.
(L) Employee means any person, including an Officer or Director, employed
by the Company or any Affiliate. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.
(M) Exchange Act means the Securities Exchange Act of 1934, as
amended.
(N) Fair Market Value means, as of any date, the value of the Common Stock
determined as follows:
(I) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market, the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest volume of
trading in Common Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
2.
<PAGE>
(II) If the Common Stock is quoted on the Nasdaq Small-Cap Market or
is regularly quoted by a recognized securities dealer but selling prices are not
reported, the Fair Market Value of a share of Common Stock shall be the mean
between the bid and asked prices for the Common Stock on the last market trading
day prior to the day of determination, as reported in the Wall Street Journal or
such other source as the Board deems reliable;
(III) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.
(IV) Prior to the Listing Date, the value of the Common Stock shall
be determined in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations.
(O) Listing Date means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(P) Incentive Stock Option means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(Q) Non-Employee Director means a Director of the Company who either (i)
is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or subsidiary for services rendered as a consultant or in
any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act Regulation S-K)), does not possess an interest in
any other transaction as to which disclosure would be required under Item 404(a)
of Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(R) Nonstatutory Stock Option means an Option not intended to qualify as
an Incentive Stock Option.
(S) Officer means (i) before the Listing Date, any person designated by
the Company as an officer and (ii) on and after the Listing Date, a person who
is an officer of the Company within the meaning of Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder.
(T) Option means a stock option granted pursuant to the Plan.
(U) Option Agreement means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. Each
Option Agreement shall be subject to the terms and conditions of the Plan.
3.
<PAGE>
(V) Optionee means an Employee, Director or Consultant who holds an
outstanding Option.
(W) Outside Director means a Director of the Company who either (i) is not
a current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(X) Plan means this NVIDIA Corporation 1998 Equity Incentive Plan.
(Y) Rule 16b-3 means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(Z) Stock Award means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
(AA) Stock Award Agreement means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(BB) Ten Percent Shareholder means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.
3. ADMINISTRATION.
(A) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(B) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(I) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
or a combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such person.
(II) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any
4.
<PAGE>
Stock Award Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(III) To amend the Plan or a Stock Award as provided in Section 13.
(IV) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(C) The Board may delegate administration of the Plan to a Committee or
Committees of one or more members of the Board, and the term "Committee" shall
apply to any person or persons to whom such authority has been delegated. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, including the power to delegate to a subcommittee any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or subcommittee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan. In the discretion of the Board, a Committee may consist solely of two
or more Outside Directors, in accordance with Code Section 162(m), or solely of
two or more Non-Employee Directors, in accordance with Rule 16b-3. Within the
scope of such authority, the Board or the Committee may (1) delegate to a
committee of one or more members of the Board who are not Outside Directors the
authority to grant Stock Awards to eligible persons who are either (a) not then
Covered Employees and are not expected to be Covered Employees at the time of
recognition of income resulting from such Stock Award, or (b) not persons with
respect to whom the Company wishes to comply with Section 162(m) of the Code,
and/or (2) delegate to a committee of one or more members of the Board who are
not Non-Employee Directors the authority to grant Stock Awards to eligible
persons who are not then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(A) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate fifteen million (15,000,000) shares of the
Company's Common Stock. Notwithstanding the foregoing, on the last day of each
fiscal year (the "Calculation Date"), commencing with January 31, 1999, the
aggregate number of shares of Common Stock that are available for issuance
under the Plan shall automatically be increased by a number of shares equal to
five percent (5%) of the Diluted Shares Outstanding. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the stock not acquired under such Stock Award
shall revert to and again become available for issuance under the Plan.
5.
<PAGE>
(B) Except as adjusted pursuant to Section 12 of the Plan, however, no
more than fifteen million (15,000,000) of the shares eligible for issuance under
the Plan shall be issued upon the exercise of Incentive Stock Options under the
Plan.
(C) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
(D) Prior to the Listing Date, at no time shall the total number of shares
issuable upon exercise of all outstanding Options and the total number of shares
provided for under any stock bonus or similar plan of the Company exceed the
applicable percentage as calculated in accordance with the conditions and
exclusions of Section 260.140.45 of Title 10 of the California Code of
Regulations, based on the shares of the Company which are outstanding at the
time the calculation is made.
5. ELIGIBILITY.
(A) Incentive Stock Options may be granted only to Employees. Stock Awards
other than Incentive Stock Options may be granted only to Employees, Directors
or Consultants.
(B) No person shall be eligible for the grant of an Option or an award of
purchase of restricted stock if, at the time of grant, such person owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates unless the exercise price of such Option
is at least one hundred ten percent (110%) of the Fair Market Value of such
stock at the date of grant, the exercise price of such restricted stock award is
at least one hundred percent (100%) of the Fair Market Value of such stock at
the date of grant and the Stock Award is not exercisable after the expiration of
five years from the date of grant. After the Listing Date, this provision shall
apply only to Incentive Stock Options.
(C) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, no employee shall be eligible to be granted Options covering
more than one million (1,000,000) shares of the Common Stock during any calendar
year. This subsection shall not apply prior to the Listing Date and, following
the Listing Date, this subsection shall not apply until (i) the earliest of: (A)
the first material modification of the Plan (including any increase to the
number of shares reserved for issuance under the Plan in accordance with Section
4); (B) the issuance of all of the shares of Common Stock reserved for issuance
under the Plan; (C) the expiration of the Plan; or (D) the first meeting of
shareholders at which Directors of the Company are to be elected that occurs
after the close of the third calendar year following the calendar year in which
occurred the first registration of an equity security under Section 12 of the
Exchange Act; or (ii) such other date required by Section 162(m) of the Code and
the rules and regulations promulgated thereunder.
6.
<PAGE>
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(A) TERM. No Option shall be exercisable after the expiration of ten years
from the date it was granted.
(B) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the fair market value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted.
(C) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (a) by delivery to the Company of other Common Stock, (b) according to a
deferred payment or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other Common Stock) with the person to
whom the Option is granted or to whom the Option is transferred pursuant to
subsection 6(d), or (C) in any other form of legal consideration that may be
acceptable to the Board; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment. In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(D) TRANSFERABILITY. An Incentive Stock Option and, prior to the Listing
Date, a Nonstatutory Stock Option shall not be transferable except by will or by
the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Incentive Stock Option is granted only by
such person. After the Listing Date, a Nonstatutory Stock Option shall be
transferable to the extent provided in the Option Agreement. If the Nonstatutory
Stock Option does not provide for transferability, then the Nonstatutory Stock
Option shall not be transferable except by will or by the laws of descent and
distribution, and shall be exercisable during the lifetime of the person to whom
the Option is granted only by such person. Notwithstanding the foregoing
provisions of subsection 6(f), the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionee, shall
thereafter be entitled to exercise the Option.
(E) VESTING. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the
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Option may become exercisable ("vest") with respect to some or all of the shares
allotted to that period, and may be exercised with respect to some or all of the
shares allotted to such period and/or any prior period as to which the Option
became vested but was not fully exercised. The Option may be subject to such
other terms and conditions on the time or times when it may be exercised which
may be based upon performance or other criteria as the Board may deem
appropriate. The provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may be
exercised.
(F) MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding the
foregoing subsection, Options granted prior to the Listing Date shall provide
for vesting of the total number of shares at a rate of at least twenty percent
(20%) per year over five (5) years from the date the Option was granted, subject
to reasonable conditions such as continued employment. However, in the case of
such Options granted to officers, directors or consultants (within the meaning
of Section 260.140.41 of Title 10 of the California Code of Regulations), the
Option may become fully exercisable, subject to reasonable conditions such as
continued employment, at any time or during any period established by the
Company; for example, the vesting provision of the Option may provide for
vesting of less than twenty percent (20%) per year of the total number of shares
subject to the Option.
(G) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionee's
Continuous Service terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Service (or such longer or shorter
period specified in the Option Agreement, which, for Options granted prior to
the Listing Date, shall not be less than thirty (30) days unless such
termination is for cause), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionee does not
exercise his or her Option within the time specified in the Option Agreement,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
(H) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Service
terminates as a result of the Optionee's disability, the Optionee may exercise
his or her Option, (to the extent such Optionee was entitled to exercise it at
the date of termination) but only within such period of time ending on the
earlier of (i) the date twelve (12) months following such termination (or such
longer or shorter period specified in the Option Agreement, which, for Options
granted prior to the Listing Date, shall not be less than six (6) months) or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(I) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or
within a period specified in the Option after the termination of, the Optionee's
Continuous Status as an Employee, Director, or Consultant, the Option may be
exercised (to the extent the Optionee was
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entitled to exercise the Option at the date of death) by the Optionee's estate,
by a person who acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the option upon the Optionee's
death pursuant to subsection 6(d), but only within the period ending on the
earlier of (i) the date eighteen (18) months following the date of death (or
such longer or shorter period specified in the Option Agreement, which, for
Options granted prior to the Listing Date, shall not be less than six (6)
months), or (ii) the expiration of the term of such Option as set forth in the
Option Agreement. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(J) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time before the Optionee's Continuous
Service terminates to exercise the Option as to any part or all of the shares
subject to the Option prior to the full vesting of the Option. Subject to the
repurchase option limitations specified in subsection 11(h), any unvested shares
so purchased may be subject to a repurchase right in favor of the Company or to
any other restriction the Board determines to be appropriate.
(K) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the Re-
Load Option on the date of exercise of the original Option or, in the case of a
Re-Load Option which is an Incentive Stock Option and which is granted to a ten
percent (10%) shareholder (as described in subsection 5(c)), shall have an
exercise price which is equal to one hundred ten percent (110%) of the Fair
Market Value of the stock subject to the Re-Load Option on the date of exercise
of the original Option.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board or Committee may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 11(d) of the Plan and in Section 422(d) of the
Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load
Option shall be subject to the availability of sufficient shares under
subsection 4(a) and shall be subject to such other terms and conditions as the
Board or Committee may determine.
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7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(A) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit. For grants prior to the
Listing Date, the purchase price under each restricted stock purchase agreement
shall not be less than eighty-five percent (85%) of the stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated.
(B) TRANSFERABILITY. Rights to purchase shares under a stock bonus or
restricted stock purchase agreement granted prior to the Listing Date shall not
be transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Stock Award
is granted only by such person. Rights to purchase shares under a stock bonus or
restricted stock purchase agreement granted on or after the Listing Date shall
be transferable by the grantee only upon such terms and conditions as are set
forth in the applicable Stock Award Agreement, as the Board shall determine in
its discretion, so long as stock awarded under such Stock Award Agreement
remains subject to the terms of the agreement.
(C) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in their discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(D) VESTING. Subject to the repurchase option limitations specified in
subsection 11(h), shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or the Committee.
(E) TERMINATION OF CONTINUOUS SERVICE. Subject to the repurchase option
limitations specified in subsection 11(h), in the event a Participant's
Continuous Service
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terminates, the Company may repurchase or otherwise reacquire any or all of the
shares of stock held by that person which have not vested as of the date of
termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.
8. CANCELLATION AND RE-GRANT OF OPTIONS.
The Board or the Committee shall have the authority to effect, at any time
and from time to time, (i) the repricing of any outstanding Options, and (ii)
with the consent of the affected holders of Options, the cancellation of any
outstanding Options under the Plan and the grant in substitution therefor of new
Options under the Plan covering the same or different numbers of shares of
stock, but having an exercise price per share not less than eighty five percent
(85%) of the Fair Market Value (one hundred percent (100%) of the Fair Market
Value in the case of an Incentive Stock Option or, in the case of an Incentive
Stock Option granted to a ten percent (10%) shareholder (as described in
subsection 5(c)), not less than one hundred ten percent (110%) of the Fair
Market Value) per share of stock on the new grant date.
9. COVENANTS OF THE COMPANY.
(A) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(B) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act either the Plan, any Stock Award or any stock issued or
issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such Stock Awards
unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
11. MISCELLANEOUS.
(A) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest in accordance with the Plan, notwithstanding the provisions in
the Stock Award stating the time at which it may first be exercised or the time
during which it will vest.
(B) Neither an Employee, Director or Consultant nor any person to whom a
Stock Award is transferred under subsection 6(d) or 7(b) shall be deemed to be
the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
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(C) Prior to the Listing Date, as required by Section 260.140.46 of Title
10 of the California Code of Regulations, the Company shall deliver financial
statements to Participants at least annually. This subsection shall not apply to
key Employees whose duties in connection with the Company assure them access to
equivalent information.
(D) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate (or to continue acting as a Director or Consultant) or shall affect
the right of the Company or any Affiliate to terminate the employment or
relationship as a Director or Consultant of any Employee, Director, Consultant
or other holder of Stock Awards with or without cause.
(E) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(F) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred pursuant to subsection 6(d)
or 7(b), as a condition of exercising or acquiring stock under any Stock Award,
(i) to give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (1) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(2) as to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(G) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of Common Stock.
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(H) The terms of any repurchase option shall be specified in the Stock
Award and may be either at fair market value or at not less than the original
purchase price. As required by Section 260.140.41 and Section 260.140.42 of
Title 10 of the California Code of Regulations, any repurchase option in a Stock
Award granted prior to the Listing Date and held by a person other than an
Officer, Director or Consultant shall be upon the terms described below :
(I) If repurchase option gives the Company the right to repurchase
the shares upon termination of employment at not less than the fair market value
of the shares to be purchased on the date of termination of employment, then (1)
the right to repurchase shall be exercised for cash or cancellation of purchase
money indebtedness for the shares within ninety (90) days of termination of
employment (or in the case of shares issued upon exercise of Stock Awards after
the date of termination, within ninety (90) days after the date of the exercise)
or such longer period as may be agreed to by the Company and the Participant
(for example, for purposes of satisfying the requirements of Section 1202(c)(3)
of the Code regarding "qualified small business stock"), and (2) the right
terminates when the shares become publicly traded.
(II) If repurchase option gives the Company the right to repurchase
the shares upon termination of employment at the original purchase price, then
(1) the right to repurchase at the original purchase price shall lapse at the
rate of at least twenty percent (20%) of the shares per year over five (5) years
from the date the Stock Award is granted (without respect to the date the Stock
Award was exercised or became exercisable) and (2) the right to repurchase shall
be exercised for cash or cancellation of purchase money indebtedness for the
shares within ninety (90) days of termination of employment (or in the case of
shares issued upon exercise of Options after the date of termination, within
ninety (90) days after the date of the exercise) or such longer period as may be
agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock").
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(A) If any change is made in the stock subject to the Plan, or subject to
any Stock Award (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Plan will be appropriately adjusted in
the class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a) and the outstanding Stock Awards will be appropriately adjusted
in class(es) and number of shares and price per share of stock subject to such
outstanding Stock Awards.
(B) In the event of a dissolution or liquidation of the Company, then,
upon advance written notice by the Company of at least ten (10) business days to
the holders of any Stock Awards outstanding under the Plan, such Stock Awards
shall be terminated if not exercised (if applicable) prior to such event.
(C) In the event of (1) a sale of substantially all of the assets of the
Company, (2) a merger or consolidation in which the Company is not the surviving
corporation or (3) a reverse merger in which the Company is the surviving
corporation but the shares of Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other
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property, whether in the form of securities, cash or otherwise, then any
surviving corporation or acquiring corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar stock awards (including
an award to acquire the same consideration paid to the shareholders in the
transaction described in this subsection for those outstanding under the Plan.
In the event any surviving corporation or acquiring corporation refuses to
assume such Stock Awards or to substitute similar stock awards for those
outstanding under the Plan, then with respect to Stock Awards held by persons
whose Continuous Service has not terminated, the vesting of such Stock Awards
(and, if applicable, the time during which such Stock Awards may be exercised)
shall be accelerated upon prior written notice by the Company to the holders of
such Stock Awards at least five (5) business days prior to such event and the
Stock Awards shall terminate if not exercised (if applicable) at or prior to
such event. With respect to any other Stock Awards outstanding under the Plan,
upon advance written notice by the Company of at least five (5) business days to
the holders of such Stock Awards, such Stock Awards shall terminate if not
exercised (if applicable) prior to such event.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(A) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company to the extent shareholder approval is necessary to satisfy the
requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities
exchange listing requirements.
(B) The Board may in its sole discretion submit any other amendment to the
Plan for shareholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(C) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(D) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
(E) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
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14. TERMINATION OR SUSPENSION OF THE PLAN.
(A) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate at the close of business on February 16,
2008, which shall be within ten (10) years from the date the Plan is adopted by
the Board or approved by the shareholders of the Company, whichever is sooner.
Notwithstanding the foregoing, all Incentive Stock Options shall be granted, if
at all, no later than the last day preceding the tenth (10th) anniversary of the
earlier of (i) the date on which the latest increase in the maximum number of
shares issuable under the Plan was approved by the shareholders of the Company
or (ii) the date such amendment was adopted by the Board. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(B) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was granted.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the date adopted by the Board, but no
Options or rights to purchase restricted stock shall be exercised, and no stock
bonuses shall be granted under the Plan, unless and until the Plan has been
approved by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted by the Board.
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EXHIBIT 10.6
NVIDIA Corporation
1998 Employee Stock Purchase Plan Offering
ADOPTED FEBRUARY 17, 1998
AMENDED DECEMBER 7, 1998
1. GRANT; OFFERING DATE.
(A) The Board of Directors of NVIDIA Corporation, a Delaware corporation
(the "Company"), pursuant to the Company's 1998 Employee Stock Purchase Plan
(the "Plan"), hereby authorizes the grant of rights to purchase shares of the
common stock of the Company ("Common Stock") to all Eligible Employees (an
"Offering"). The first Offering shall begin on the effective date of the initial
public offering of the Company's Common Stock and end on February 29, 2000 (the
"Initial Offering"). The Initial Offering will be divided into two (2) shorter
Purchase Periods of approximately six (6) months in duration, with the initial
Purchase Period ending on August 31, 1999 and the second Purchase Period ending
on February 29, 2000.
(B) Thereafter, commencing on March 1, 2000 an Offering shall be one (1)
year in length, shall begin on each March 1 and shall be divided into two (2)
shorter Purchase Periods of approximately six (6) months in duration. The
first day of an Offering is that Offering's "Offering Date." August 31 and
February 28 (or February 29 in the event of a leap year) shall be that
Offering's "Purchase Dates."
(C) If an Offering Date does not fall on a day during which the Company's
Common Stock is actively traded, then the Offering Date shall be the next
subsequent day during which the Company's Common Stock is actively traded. If
a Purchase Date does not fall on a day during which the Company's Common Stock
is actively traded, then the Purchase Date shall be the immediately preceding
day during which the Company's Common Stock is actively traded.
(D) Prior to the commencement of any Offering, the Board of Directors (or
the Committee described in subparagraph 2(c) of the Plan, if any) may change any
or all terms of such Offering and any subsequent Offerings. The granting of
rights pursuant to each Offering hereunder shall occur on each respective
Offering Date unless, prior to such date (a) the Board of Directors (or such
Committee) determines that such Offering shall not occur, or (b) no shares
remain available for issuance under the Plan in connection with the Offering.
2. ELIGIBLE EMPLOYEES.
All employees of the Company and each of its Affiliates (as defined in the
Plan) incorporated in the United States, shall be granted rights to purchase
Common Stock under each Offering on the Offering Date (an "Eligible Employee").
Notwithstanding the foregoing, the following employees shall not be Eligible
Employees or be granted rights under an Offering: (i) part-time or seasonal
employees whose customary employment is less than 20 hours per week or five
months per calendar year or (ii) 5% shareholders (including ownership through
unexercised options) described in subparagraph 5(c) of the Plan.
3. RIGHTS.
(A) Subject to the limitations contained herein and in the Plan, on each
Offering Date each Eligible Employee shall be granted the right to purchase the
number of shares of Common Stock purchasable with up to ten percent (10%) of
such Eligible Employee's Earnings paid
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during such Offering after the Eligible Employee first commences participation;
provided, however, that no employee may purchase Common Stock on a particular
Purchase Date that would result in more than ten percent (10%) of such
employee's Earnings in the period from the Offering Date to such Purchase Date
having been applied to purchase shares under all ongoing Offerings under the
Plan and all other Company plans intended to qualify as "employee stock purchase
plans" under Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code"). For this Offering, "Earnings" means the total compensation paid to an
employee, including all salary, wages (including amounts elected to be deferred
by the employee, that would otherwise have been paid, under any cash or deferred
arrangement established by the Company), overtime pay, commissions, bonuses, and
other remuneration paid directly to the employee, but excluding profit sharing,
the cost of employee benefits paid for by the Company, education or tuition
reimbursements, imputed income arising under any Company group insurance or
benefit program, traveling expenses, business and moving expense reimbursements,
income received in connection with stock options, contributions made by the
Company under any employee benefit plan, and similar items of compensation.
(B) Subject to the limitations contained herein and in the Plan, each
employee who was not eligible on the Offering Date but who first becomes an
Eligible Employee during the Offering shall, on the next September 1 during that
Offering, be granted the right to purchase the number of shares of Common Stock
purchasable with up to ten percent (10%) of such employee's Earnings paid during
his or her participation in such Offering, which right shall be deemed to be a
part of the Offering. Such right shall have the same characteristics as any
rights originally granted under the Offering, except that (i) the date on which
such a right is granted shall be the "Offering Date" of such right for all
purposes, including determination of the exercise price of such right; and (ii)
the Offering for such right shall begin on its Offering Date and end coincident
with the end of the ongoing Offering.
(C) Notwithstanding the foregoing, the maximum number of shares of Common
Stock an Eligible Employee may purchase on any Purchase Date in an Offering
shall be such number of shares as has a fair market value (determined as of the
Offering Date for such Offering) equal to (x) $25,000 multiplied by the number
of calendar years in which the right under such Offering has been outstanding at
any time, minus (y) the fair market value of any other shares of Common Stock
(determined as of the relevant Offering Date with respect to such shares) which,
for purposes of the limitation of Section 423(b)(8) of the Code, are attributed
to any of such calendar years in which the right is outstanding. The amount in
clause (y) of the previous sentence shall be determined in accordance with
regulations applicable under Section 423(b)(8) of the Code based on (i) the
number of shares previously purchased with respect to such calendar years
pursuant to such Offering or any other Offering under the Plan, or pursuant to
any other Company plans intended to qualify as "employee stock purchase plans"
under Section 423 of the Code, and (ii) the number of shares subject to other
rights outstanding on the Offering Date for such Offering pursuant to the Plan
or any other such Company plan.
(D) The maximum aggregate number of shares available to be purchased by
all Eligible Employees under an Offering shall be the number of shares remaining
available under the Plan on the Offering Date. If the aggregate purchase of
shares of Common Stock upon exercise of rights granted under the Offering would
exceed the maximum aggregate number of
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shares available, the Board shall make a pro rata allocation of the shares
available in a uniform and equitable manner.
4. PURCHASE PRICE.
The purchase price of the Common Stock under the Offering shall be the
lesser of eighty-five percent (85%) of the fair market value of the Common Stock
on the Offering Date or eighty-five percent (85%) of the fair market value of
the Common Stock on the Purchase Date, in each case rounded up to the nearest
whole cent per share. For the Initial Offering, the fair market value of the
Common Stock at the time when the Offering commences shall be the price per
share at which shares of Common Stock are first sold to the public in the
Company's initial public offering as specified in the final prospectus with
respect to that offering.
5. PARTICIPATION.
(A) An Eligible Employee may elect to participate in an Offering only at
the beginning of the Offering, or such later date specified in subparagraph
3(b). An Eligible Employee shall become a participant in an Offering by
delivering an agreement authorizing payroll deductions. Such deductions must be
in whole percentages, with a minimum percentage of one percent (1%) and a
maximum percentage of ten percent (10%) of earnings. A participant may not make
additional payments into his or her account. The agreement shall be made on such
enrollment form as the Company or a designated Affiliate provides, and must be
delivered to the Company or designated Affiliate at least ten (10) days before
the Offering Date, or before such later date specified in subparagraph 3(b), to
be effective, unless a later time for filing the enrollment form is set by the
Board for all Eligible Employees with respect to a given Offering Date. For the
Initial Offering, the time for filing an enrollment form and commencing
participation for individuals who are Eligible Employees on the Offering Date
for the Initial Offering may be after the Offering Date, as determined by the
Company and communicated to such Eligible Employees. (If the agreement
authorizing payroll deductions is required to be delivered to the Company or
designated Affiliate a specified number of days before the Offering Date to be
effective, then an employee who becomes eligible during the required delivery
period shall not be considered to be an Eligible Employee at the beginning of
the Offering but may elect to participate during the Offering as provided in
subparagraph 3(b).)
(B) A participant may reduce (including to zero) his or her participation
level once (and only once) during a Purchase Period, effective as soon as
administratively practicable. Any such change in participation shall be made by
delivering a notice to the Company or a designated Affiliate in such form and at
such time as the Company provides. In addition, a participant may increase or
decrease his or her deductions prior to the beginning of a new Purchase Period
or Offering to be effective at the beginning of such new Purchase Period or
Offering. Except as otherwise specifically provided herein, a participant may
not increase or decrease his or her participation level during the course of an
Offering.
(C) A participant may withdraw from an Offering and receive his or her
accumulated payroll deductions from the Offering (reduced to the extent, if any,
such deductions have been used to acquire Common Stock for the participant on
any prior Purchase Dates), without interest, at any time prior to the end of the
Offering, excluding only each ten (10) day period immediately
3.
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preceding a Purchase Date by delivering a withdrawal notice to the Company in
such form as the Company provides. A participant who has withdrawn from an
Offering shall not again participate in such Offering but may participate in
subsequent Offerings under the Plan by submitting a new participation agreement
in accordance with the terms thereof.
6. PURCHASES.
Subject to the limitations contained herein, on each Purchase Date, each
participant's accumulated payroll deductions (without any increase for interest)
shall be applied to the purchase of whole shares of Common Stock, up to the
maximum number of shares permitted under the Plan and the Offering.
7. NOTICES AND AGREEMENTS.
Any notices or agreements provided for in an Offering or the Plan shall be
given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or this Offering shall be deemed effectively given upon
receipt or, in the case of notices and agreements delivered by the Company, five
(5) days after deposit in the United States mail, postage prepaid.
8. EXERCISE CONTINGENT ON SHAREHOLDER APPROVAL.
The rights granted under an Offering are subject to the approval of the
Plan by the shareholders as required for the Plan to obtain treatment as a tax-
qualified employee stock purchase plan under Section 423 of the Code.
9. OFFERING SUBJECT TO PLAN.
Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict
between the provisions of an Offering and those of the Plan (including
interpretations, amendments, rules and regulations that may from time to time be
promulgated and adopted pursuant to the Plan), the provisions of the Plan shall
control.
4.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
NVIDIA Corporation:
The audits referred to in our report dated November 16, 1998, included the
related financial statement schedule as of October 25, 1998, and for each of
the years in the three-year period ended December 31, 1997, the one-month
period ended January 31, 1998, and the nine-month period ended October 25,
1998, included in the registration statement. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Selected Financial Data" and "Experts" in the
prospectus.
KPMG Peat Marwick LLP
Mountain View, California
December 22, 1998
